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Fixing the Minimum Wage

It seems pretty clear that we are heading for a hike in the minimum wage. For the many of us who care about poverty reduction, which would be basically all of us, this could be a big deal. The problems with the minimum wage are that it:

1. May well be evaded in many cases.

2. Is very poorly targeted towards the poor we are most interested in helping. In fact, the benefits are essentially randomly distributed across the income distribution.

3. Has a hidden cost structure so that it is difficult to see who is paying for it. For example, if it is paid for through higher prices or unemployment, well this might actually be hurting more poor people than it helps! If it is paid for through profits or is actually serving to correct other market distortions then that would be better, but the evidence for this is not great and the theory behind it is a little rough going. Someone is likely paying for this increase and hiding those costs is bad policy, because then we don’t know if the benefits are worth the costs.

The nice feature of the minimum wage is that it raises the incentive to work and we like that. Also, some (but not a ton) of the money is going to poor people, although, as I noted above, we don’t actually know if the money they get is coming from hurting other poor people, so that part is dicey.

So suppose we take the current EITC and change it to be wage-based, not income based. Then, to improve targeting, make the benefits largely contingent on being an adult with young dependents, but don’t let the benefits rise for having lots of children (just like the current EITC). We already track earnings, so now we also track hours worked through the employer (to get wages) and then pay the benefit as part of the paycheck. Employers will have a big incentive to make sure this happens, as it lets them hand over a bigger paycheck which helps them in hiring. This also encourages them to hire these impoverished people, which is also good. No one has an incentive to evade, although there is the standard question of people cheating that we already have with the EITC.

The current EITC discourages people to work if they make more than poverty amounts of money. Coupled with other welfare programs, this can amount to essentially 100% “tax” rates for single mothers working for modest amounts of money. A wage EITC has no such feature built in, instead it discourages workers on a productivity margin where, frankly, the evidence suggests they don’t really move much anyway. We could cap payments at full time work, if this was a concern, but personally I don’t think that is needed.

So what would this look like? Well, take everyone below say $9/hour and pay them a subsidy of 20% (or whatever) of the difference between their current wage and $9. They still have a good incentive to fight for better wages, because they get 80% of it. And they still have the incentive to work lots of hours, because they don’t hit a benefit takeaway like exists in the current EITC from $15,000-30,000. This is not perfect, but it maintains the advantages of the minimum wage, coupled with the advantages of the EITC, while avoiding downsides from both of them. It does require a slight increase in paperwork for employers, but I hope that this would be marginal, given that they already do almost all the paperwork needed already.

At that point one could dump the minimum wage and let markets find the right wages. An obvious objection to this is that this program isn’t free like the minimum wage. But the minimum wage isn’t really free, you just never see the bill. You may think the employer is paying it, but a basic lesson from public finance is that who appears to pay the bill has no necessary relationship to who takes the actual hit, since costs can be passed on. I think we’d all be better off if we got to see the bill for what we were buying, and knew who was paying it.

I am amazed that some people think that Minimum Wage hikes help the poor. From a business stand point it appears to increase unemployment.

I have a restaurant and a monthly payroll budget of $10,000. With that budget I can employ 10 workers at $1000 each. However with each 20% increase in the minimum wage those 10 workers would now make $1200 each creating a total budget of $12,000.

Now I’m left with two choices – either layoff 2 employees and browbeat the others to work harder or I close up the restaurant and layoff all 10 workers (and cutoff my income stream).

Has anyone noticed that most teenager jobs are way below the minimum wage and under the table – i.e. babysitting, lawn mowing, car washing, etc. Minimum wage increase prevent them from getting “legal jobs”. In order to make a break into their career they frequently have to Work For Free for about three months as a summer intern. – It is not fair but is very common practice.

Travis

November 9, 2006 at 2:08 pm

Interesting ideas, Frank. Thanks for posting. Can you speak to the political issues here? Is this a proposal that various groups are talking about or pushing for? If so, who? Who’s against it and why?

I can see how Dems or others on the left might object to this option because of their general preference to increase the minimum wage, but aside from the argument that it’s not exactly what they want, I wonder what objections there would be. I don’t know enough about the mechanics of the EITC or minimum wage issues to get a sense of what the real political issues would be for a proposal like this.

Oh and maybe I do have a third alternative in the restaurant scenario – I could raise my hamburger prices by 20% to cover the wage increase.

But oh wait, this might tick off the customers and my business volume drops and I’ll have to do some layoffs anyways.

Frank McIntyre

November 9, 2006 at 2:16 pm

Christian,

I am not sure I know what you mean. I don’t think anybody doubts that the government can affect the wage distribution through regulation. The question is who is hurt by that change. I think the unexamined presumption is that businesses are hurt, but that is naive. Depending on what one assumes or observes about the labor market, the higher wages could be hurting workers, firms, or consumers, or all three.

EJS,

This is based on work I did with a professor at Stanford when I was in grad school. We wrote some papers comparing the old-school EITC, minimum wages, and this approach. We were not working off of anyone else’s idea, but the idea is simple enough that I would not be at all surprised to discover that it has been independently thought of by a variety of people. It is a natural way to think about the problem.

Roland,

The “under the table” jobs may be, to some extent, a response to high minimum wages. This was my first point about evading the law.

Matt Evans

November 9, 2006 at 2:20 pm

If the government really cared about the working poor they’d prohibit anyone from working for less than $40 an hour.

Frank McIntyre

November 9, 2006 at 2:22 pm

Travis,

The Employment Policies Institute sponsors research like this. But i don’t know if there has been any serious consideration of it by a state or the federal government.

The obvious political advantage of the minimum wage is that you can shove the costs out of sight! In reality, the minimum wage probably costs an amount comparable to the EITC or the Food Stamps program, but since it does not go through the budget this makes it easier to do.

Roland,

You have nicely illustrated in concrete terms all the different groups that might end up paying for a minimum wage hike! Suppose you could raise prices without losing many customers, well then if your customers were low income they are now paying to raise wages for your workers, many of whom may well not be poor!

jeff hoyt

November 9, 2006 at 2:22 pm

People making decisions about raising the minimum wage (Democrats in office) are, I suspect, very aware that they are hurting the poor. The economics are relatively straightforward. Democrats gain in two ways from increasing the minimum wage. First, by creating the image that they care about the poor and conversely that those evil republicans hate the poor. Second, by assuring that those with skills below minimum wage value will have a difficult time upgrading those skills and thus will be premanently a part of the undeclass which votes overwhelmingly democrat. One might label my belief about this as incredibly cynical, but I have never heard a single democrat official oppose a minimum wage hike. How likely is it that not a single one of them understand the economics?

Chad Too

November 9, 2006 at 2:39 pm

I have no head for numbers so the restaurant example above helps me see the bigger picture. Thank you for that.

Now my question. Assume in Roland’s example that instead of an increase, the minimum wage was decreased by 20% with no cut in the prices he charges for meals. The payroll costs could potentially drop to $8000. Where does the extra $2000 go? In my mind, it would go into the owner’s pocket. I doubt the manager is going to use it to hire more people (assuming the 10 employees he mentioned above are sufficient to run the business).

I don’t have a problem with that per se (he/she assumes the risk of owning the restaurant), but I think it doesn’t go deep enough to say that the poor receive no benefit from a minimum wage. Employers are always going to maximise profits when they can and if they could get away with hiring people at 50% of what the government requires they would.

Now if we could just get the poor to understand that it really is a good idea to pay off their high interest rate payday loans instead of letting them carry over, even though it means less money in their pockets for a few months.

Jay S

November 9, 2006 at 2:42 pm

People talk about “upgrading their skills” as a solution. And while it may be a solution for an individual, it makes bad policy for everyone to do so. Why? Because if everyone is more qualified, then you have everyone vastly overqualified. This creep is why a college degree is worth less now than it was 30 years ago. Basically, we will always have a need for janitors, waiters, dishwashers etc. If everyone has a college degree, we will have dishwashers with a BA in English LIt. Not a bad thing, but a waste of resources.

I think we should have a living wage, that is, that each person who works should have enough food, clothing and shelter to survive. I agree that the EITC is a good way to accomplish this. I recall reading an article on slate that espoused this view a while back. The downside is that the full effect of the EITC isn’t spread out, but comes once a year (some effect comes during, as deductions are lower). Thus it doesn’t impact standard of living as much as it could, and instead of being spent on clothing and bread, is more likely to be spent on debt reduction and big screen tvs than if it were spread out.

Also, raising the min wage increases illegal immigration. Now, I am not an opponent of immigration, but it stands to reason that if you raise wages relatively, you increase the desire of immigrants to come and work. You also increase the demand for under the table labor. We need to realize that we our country does not contain a vacuum, but is porous and both impacts and is affected by other economies.

I think raising the min wage isn’t a horrible idea, but isn’t a panacea. The benefit is too far spread, benefiting the working class family and teenagers working for the A&F sweater.
I am interested to see how the passage of the recent ballot measure in Nevada will play out. It changed the minimum wage to require a $1 per hour increase for every worker who is not provided health care.

“Where does the extra $2000 go? In my mind, it would go into the ownerâ€™s pocket.”

In the short term. In the long term, the lower risk will mean more restaurants will open up, creating more job opportunities.

Ardis

November 9, 2006 at 3:00 pm

Complaints about raising the minimum wage always seem to be illustrated by cases such as roland’s, with a low profit margin business and low skilled workers who very well may be adversely affected by a raise in the minimum wage. You don’t ever hear about the cases of, say, Provo lawyers who take home $250K in addition to paying many of their living expenses through office accounts, but who pay their secretaries, clerks, accountants, and other peons $6-$10 per hour regardless of their experience or the contributions made to the lawyers’ reputation and income in the way of, oh, I don’t know, let’s say pacifying irate clients and irritated clerks and judges, and keeping the paperwork flowing so that the lawyers don’t get bounced out of the bar for repeated instances of missing deadlines and ignoring clients’ cases. Not that I have any particular Provo gentlemen in mind, but would anybody care for a copy of my resume? They get away with it because there is always some student or student’s wife who is willing to take the job for even less.

Personal grudges aside, the point is that employers pay as little as they can possibly get away with. I don’t fault anybody for that, really — I pay as little for potatoes as I can get away with, too. But if it cost more to raise and deliver potatoes than I’m paying now, I could pay more. So could many, if not most, employers who are paying minimum or barely-above-minimum wages. If they had to.

Who cares how much the employer is taking home, that shouldn’t have any impact on the amount of money you deserve. When I get a job I agree to the job description and the employer agrees to pay me what we mutually agree on. If the job description expands then negotiation happens (which sometimes means I leave the job). Yeah, they could afford to pay me more but we didn’t agree on more, we agreed on what I make now.

Frank McIntyre

November 9, 2006 at 3:26 pm

Ardis,

“So could many, if not most, employers who are paying minimum or barely-above-minimum wages. If they had to.”

It turns out that “had to” because the government says so has very different implications than “had to” because of the actual costs or market demands. A minimum wage is a price floor, and in a competitive market it causes unemployment. Now, there are other models and a few different ideas have been bandied about in the comments about who really wins or loses. Fine, we can have those arguments, but at the end of the day it is dumb to fund a program that costs billions of dollars in a way that nobody is really sure who is paying for it. A wage EITC solves this problem.

bbell

November 9, 2006 at 3:31 pm

Frank,

I hear your logic on this issue. The problem is that the average voter cannot make sense of basic economics

There is almost no way to politically oppose the Min wage if it comes up for an actual vote.

It has not been raised since 1997 and is really really low by historical standards.

Chad Too

November 9, 2006 at 3:35 pm

Rusty,
I thought I succesfully showed that I bear no employer any ill will regarding what he takes home. I’m only saying that I think the claim that the poor get no benefit from a minimum wage is not looking at the entire picture. I’m with you on the agreement thing, but regarding low-wage jobs I’m not naive enough to think that employers are going to offer higher wages out of the goodness of their hearts. There would always someone willing to work cheaper to get the job — yet another downward spiral. I see some benefit to the artificial floor, though I recognize it’s no panacea.

Frank McIntyre

November 9, 2006 at 3:42 pm

“There would always someone willing to work cheaper to get the job â€” yet another downward spiral.”

Chad, the argument you are making relies on some form of all-powerful employer who can rake workers over the coals without fear of competition. Fortunately, there are lots of employers who compete for workers, thus disciplining your downward spiral. And it does so in a socially optimal way, as compared to artificial wage floors which hurt people, probably poor people.

You know, a lot of the resistance against reform seems to come from this idea that there are problems with the reform implementation, so we’d be better-off not doing it. You see this on the Kyoto treaty, you see it on education funding, you see it on welfare issues.

This is all-or-nothing thinking. Fallacious at best, cynically opportunistic at worst.

At a certain point, we just have to suck it up, make the stupid reform and work out the bugs later. You are NEVER going to have a perfect bill. So pointing out that the reform in question has problems is hardly a decisive argument against doing it.

Sometimes even a SYMBOLIC guesture is vitally important to social progress.

Frank McIntyre

November 9, 2006 at 4:16 pm

“At a certain point, we just have to suck it up, make the stupid reform and work out the bugs later. ”

Seth, are you talking about the minimum wage? The minimum wage law has been around since the 1930s. It is not a new reform in any conceivable sense of the word. It is also very likely that it is more damaging to poor people than helpful to them. So no, I see no reason why we should just go ahead “even though it isn’t perfect”, because the most likely outcome is to make things worse, not better. If you were looking for a reform most likely to help, you’d be better off ending the minimum wage law, even if you didn’t implement the program I discussed above.

As for “symbolic gestures”, can we at least agree to limit ourselves to symbolic gestures that don’t actually seem likely to hurt poor people?

Sarah

November 9, 2006 at 4:16 pm

What’s odd to me is that it’s generally quite rare for entry-level people to work at the actual minimum wage. As a waitress I’ve worked for 50% of the minimum wage, and there were a few months (at age 16) working at a fast food restaurant and a movie theatre for the exact minimum wage — but these were situations in areas with a vast oversupply of workers and a shortage of full-time middle class workers (a university area, and a small town where the main employer, the local factory, cut 1/3rd of its workforce the year I turned 16, mainly booting the 17-20 year old guys working third shift.) I remember feeling absolutely rich when I got my first clerical job, at $7.25/hour — that was the lowest (other than waitressing) I’ve been paid since then. Even Disneyland paid more than that, for heaven’s sake (I started at $7.63 there — about $1.50 more than the CA minimum wage at the time; they were one of the lowest paying non-fast-food employers in the area, and whenever the Taco Bell drove away too many people, they’d just put out a sign saying “NOW HIRING – $9/HOUR” and all the shifts would be filled quickly.)

And even in places where the bottom people really do start out at the minimum wage, they tend to get wage hikes relatively quickly (in an environment where 60-120 days is a “long” time to be working, automatic wage hikes at 90 and 150 days seem common.) This was one of the problems people working at Disneyland had — you could start about $.35 higher than you would at McDonald’s, but the attendance policies and off-season scheduling (and other perks) were such that hardly anyone who lasted 60 days would quit before about 9 months in, and so you only got a wage increase once per year. Plenty of people quit when they realized that you got a dollar or more increase at that same McDonald’s, after six months in. The places where I worked for the genuine minimum wage were paying all the people with experience (i.e. who stuck around for more than six months) two or three dollars per hour more than they paid me. The guy who worked at the theatre (essentially) full time, and had been around long enough to know how to do all the work well, was getting $13/hour.

(as far as the 3:56 comment by Seth is concerned: plenty of flawed, “hey, we can fix it later” solutions have come into effect in the last seventy years. I note that many of them are still seriously flawed (MediCare, Social Security) and that the forces of inertia have essentially prevented any genuine reform of those solutions. In an entitlement driven populace, voting or arguing against imperfect solutions is sometimes the only sensible alternative.)

Last Lemming

November 9, 2006 at 4:24 pm

this might tick off the customers and my business volume drops and Iâ€™ll have to do some layoffs anyways.

Your business volume will drop, but not by that much. Your customers cannot just shift to another restaurant, because it will have been hit with the same cost increase (unless it was already paying more than the minimum wage) and will also pass that cost on to customers. They may decide to cook their own hamburgers, but that presumes that the grocery store did not also have to raise the price of ground beef to pay their checkers and stock boys. And they may not have; they may just tolerate longer lines at the checkout counter. This is what Frank is talking about when he says it is impossible to figure out who really pays.

Where does the extra $2000 go? In my mind, it would go into the ownerâ€™s pocket

Until one owner lowers his prices. Then, all the customers will go there, and soon all of the owners will have to match the price drop.Also, raising the min wage increases illegal immigration. Now, I am not an opponent of immigration, but it stands to reason that if you raise wages relatively, you increase the desire of immigrants to come and work.

That’s only half the story. The more common criticism is that the minimum wage prices low-skilled workers out of the market, thereby increasing unemployment. I suspect that a much higher proportion of minimum wage workers are illegal aliens than are workers earning more than the minimum wage. Increasing the minimum wage, therefore, should price many of them out of the market, providing an incentive for them to go home. To buy your argument would be to acknowledge that a higher minimum wage actually increases labor output.

I am agnostic on the effects of a minimum wage hike. It has been raised many times in the past and the economy rolls along. Raising it is not going to throw us into a recession. I suspect that opposition on the street arises from exactly the same assumptions that make it popular among lower-income folks–namely that it is redistributive downward. Since the Democrats are determined to do it, my preference would be to do so in conjunction with a comprehensive immigration bill.

As for Frank’s idea, I have not thought through it, so I have no detailed comments. My first impression, however, is that it would entail a much greater increase in administrative costs than he seems to assume.

Geoff B

November 9, 2006 at 4:27 pm

Frank M, great to see some common-sense thinking on this issue. The Nov. 3 edition of the Economist had an article with similar points to this post. Speaking as a fiscal conservative, I don’t think most well-meaning conservatives have a problem with a basic amount of money to help working people who are truly poor get above a certain subsistence level. The EITC does this, and as a follower of the Prince of Peace, I feel good about making sure the working poor are rewarded. In most cities, it is nearly impossible to live on minimum wage, so the EITC is a good vehicle to reward them for working.

I think your formula is just too complicated for the average voter and can simply be spun as “another increase in government spending.” So, even though I would support it, I doubt it would pass.

I am against increasing the national minimum wage. Many of the reasons have been mentioned here, most eloquently by Roland. The other issue that many people forget is that increasing the minimum wage does not necessarily help the poor. A large percentage of minimum wage earners are teenage sons and daughters of the middle class and upper-middle class. Most establishments employing the working poor (McDonald’s, etc.) already pay better than the minimum wage in large cities because of market forces. Yes, there are McDonald’s in many place that pay minimum wage, but in general living costs are lower and they are generally responding to the market.

manaen

November 9, 2006 at 4:44 pm

Just a drive-by comment — maybe more later. BTW, I’m: a small-business owner who has employed ~ 100 people to date, a corp exec who has managed ~ 100 people to date, and someone who has both paid and been paid minimum wage.

RE: â€œWhere does the extra $2000 go? In my mind, it would go into the ownerâ€™s pocket.â€?
In the short term. In the long term, the lower risk will mean more restaurants will open up, creating more job opportunities.

That’s in the *very* short term unless the owner hoards all cash from operations. An important point in this example is, what does the owner do with the extra $2k and the rest of the profit? As soon as it’s spent/invested/donated, it grows jobs in parts of our society and deprives jobs in other parts. “Waste” it all on an expensive toy and you’ve nudged jobs into that sector.

All cost ultimately is labor (jobs). Everything called material cost actually is the cost of somebody creating that material, all the way back to the miners, oil drillers, farmers, and lawyers/govt employees who devisee and protect land and mineral rights. God *gave* us the world to use and cost is just moving money around among the people involved in the processes that create products and services.

So, in this example, what does the owner do with the extra $2k? Is it shared back to employees regularly in the form of profit sharing, once profits are assured? Is used for foolish pleasures, leading other people into jobs that are spirit-killing to provide those pleasures? Is it used for create new enterprises (and jobs)? Is it used for direct charitable benefits?

That last one is dicey: Andrew Carnegie ground his employees and donated libraries to towns all over the U.S. The best approach would be to find ways to benefit society that also elevate your employees. As in, of course,

[…] O that ye would listen unto the word of his commands, and let not this pride of your hearts destroy your souls! Think of your brethren like unto yourselves, and be familiar with all and free with your substance, that they may be rich like unto you. [Discuss among yourselves difference between this and (a) keeping riches to self so as not to share with poor (e.g. U.S. trade/job protectionism) (b) soaking the rich for the poor’s benefit until no rich remain] But before ye seek for riches, seek ye for the kingdom of God. And after ye have obtained a hope in Christ ye shall obtain riches, if ye seek them; and ye will seek them for the intent to do goodâ€”to clothe the naked, and to feed the hungry, and to liberate the captive, and administer relief to the sick and the afflicted. (Jac 2:16-19).

Geoff B

November 9, 2006 at 4:49 pm

Frank M, one more point on the minimum wage: there is a lot of opining among conservatives that one reason they lost the Senate was because of minimum wage ballot measures in Montana, for example. Democrats probably know raising the minimum wage does nothing to help the poor, but they also know it motivates Democratic voters to get to the polls. So, from a Republican perspective, the best solution may be to raise the national minimum wage to get the issue off the table for 2008 and therefore not encourage massive Democratic turnout. Does any of this help the poor? No. But such is life in our republic.

Chad Too

November 9, 2006 at 5:17 pm

“Chad, the argument you are making relies on some form of all-powerful employer who can rake workers over the coals without fear of competition. Fortunately, there are lots of employers who compete for workers, thus disciplining your downward spiral.”

You’re much more knowledgeable on these things than I am so I’m willing to take your word for it, but here’s the conversation I hear in my head:

EMPLOYER: The job pays $3.50/hour. Take it or leave it.
APPLICANT#1: The restaurant down the street is offering $4.05. I’ll go try there.
EMPLOYER: I’ve already had three people say that to me today and the guy down the street has one opening. Your move.

I can see some mitigation at higher wages, but I’m not so sure at the lower wages level or in small towns where the job possibilities are limited.

don

November 9, 2006 at 5:27 pm

Why do we accept the free enterprise system to help us have the lowest prices on goods and services, but can’t seem to apply that to wages?

We are happy to see the price of something come down because of over supply and mad as hell when prices go up because of lack of supply.

If we actually gave the free enterprise system a chance when applied to wages, it would work there too! Roland’s example is right on. I own a theater, I pay minimum wage to most of the employees. There is an over abundance of kids with no skills, never worked before, or are willing to work for minimum because of their circumstances.

The value of their labor to me and or the market might be the $5.15 they’re getting, it’s not worth $7.00! We are on a shoe-string now. Raising my $12,000/mo. employee costs could easily put us under and leave 15 kids and 3 managers unemployed….great for the economy.

By the way if I could pay $4.00/hr. I would hire probably 2-4 more kids so our snack bar line would run faster and the theaters would be cleaner after each show. Profits, sure if they increase I’d spend them effecting the economy as has already been pointed out.

Why should the government be allowed to force me to pay more to someone than they are worth in the market? Why?

How about the government setting the minimum price on a house at $750,000 so when we buy one we all can feel rich? Get the government out of wage controls!

don

November 9, 2006 at 5:31 pm

Chad, the resturant down the street gets the best employees by paying more….or he should if he has a brain. With better employees he offers better service. Better employees can do more in less time, less breakage, less management to get the job done. He either makes up the difference in the wages paid because of the benefits, and or he makes more money. If he doesn’t get these benefits then he’s and idiot for offering more than the market normally would allow.

bbell

November 9, 2006 at 5:32 pm

Don,

What would happen if you raised your ticket price by .25 or .35 each?

Would it hurt you in the market?

don

November 9, 2006 at 5:37 pm

Sorry, one more thought. Why do we feel it’s ok for a college grad, or someone with years of experience to negotiate for the highest salary possible. The employer evaluates whether the employee can offer enough value to the company to hire them at the price agreed on. The employer offers less, the applicant can either accept or walk.

But then it’s ok for the government to determine what someone’s value to the company is and force a minimum wage.

What kind of voter turn out would we get if the government determined that all College graduates were entitled to a minimum wage of $90,000/yr. Just think how much more money these people would have to spend…great for the economy….give more to charities…great for the poor.

Chad Too

November 9, 2006 at 5:58 pm

“Why should the government be allowed to force me to pay more to someone than they are worth in the market? Why?”

Your business is the distribution end of a market that would cease to exist without a very important government control (copyright), not to mention the constitutional authority to regulate commerce. I don’t think they’ll be taking a hands-off approach anytime soon.

Jay S

November 9, 2006 at 5:58 pm

Don – one justification is to provide a floor – so that employers don’t collude to commit a race to the bottom,

Second, so that govt can lay off its antipoverty measures on an employer.

Third, to provide worker protections. The min wage is an added safety layer, just like worker safety rules, hours etc. Sure, the worker could insist on it, but by having the regulation it provides a uniform and easier way to hire.

That being said, I know very few places that actually pay min wage (with the exception of tipped wait staff). Heck, most places I have been the illegal day laborers make more than min wage.

There are ways around the min wage, some ethical, some not depending on how they are implemented, ie piece work, commissioned sales, etc. I wonder what a commissioned candy counter would be like?

maf

November 9, 2006 at 6:12 pm

what happended the last time the min wage was raised?

well we are all here. just fine too. spending valuable work hours on the compter typing away.

look, the government is here for a reason and it isn’t to provide welfare to big corporations. it’s purpose is to look out for it’s citizens. have you forgotten that?

the minimum wage is nothing more than a floor, a stop loss. as the cost of living goes up, the natural course is to raise the minimum wage. key word is MINIMUM! I think the idea is to help minimize the the exploitation of the less skilled, educated, you fill in the blank, employee by the employer (the guy in power)

re # 31.
how does increasing the minimum wage equal the government determining that a college grad is worth 90k a year?

get over yourself! if you had to raise wages becuase the price of a gallon gas goes to 4 dollars, you would find a way to work it out. Well the same goes for the minimum wage. You knew when you opened your business that there is a currently a min wage and I am sure you were not naive to think that it would never go up. It is a cost of doing business. All of us are subject to it.

enjoy!

ed johnson

November 9, 2006 at 6:32 pm

Frank, I agree that the minimum wage has the weaknesses you point to.

However, the net negative effects of the minimum wage at or near the current levels are probably pretty small. Given that the public (and politicians) are economically ignorant and likely to remain so, the minimum wage might be a relatively harmless way of fulfilling political imperitives. Something must be done to help “the poor,” and there are a lot worse ideas than the minimum wage. So the minimum wage is not worth worrying about to much. What do you think of this type of argument?

Ardis

November 9, 2006 at 6:42 pm

I’m just really glad that there are really smart people in really white shirts who can figure all this out, ’cause those of us who have survived on minimum are the same ones who were too dumb to know what “EITC” meant without googling, and we don’t know or care “who pays.” We only know how hard we work, how little we take home, and how many luxuries — like basic health care — we do without.

Hail the coming revolution.

maf

November 9, 2006 at 6:44 pm

ardis,

i like how you think!

manaen

November 9, 2006 at 6:54 pm

— as we used to say at BYU, “It’s easy to make a million dollars in Provo; just work a million hours!”

M L

November 9, 2006 at 7:13 pm

I admit that the true cost of a minimum wage increase is not necessarily where we may expect (i.e. paid by the employer), but I’m surprised to see the vehemence with which the free market system is being touted as the solution to all things. I’ve worked both minimum wage jobs and significantly above minimum-wage jobs. But the focus of the minimum wage is to provide those who are willing to work with a means of earning some MINIMUM level of purchasing power for things like food, clothing, shelter, etc. And the cost of that minimum wage increase may also lead to a decrease in the need for other forms of public subsistence, such as low-income housing, welfare, WIC, food stamps, etc.

For anyone truly outraged by the minimum wage increase, try this little exercise which opened my eyes up to what minimum wage really means: Calculate what you would earn at minimum wage for a typical 40 hour week of work ($5.15*40 = $206/week) Assuming no federal or state taxes would be owed, Medicare, Social Security and in some states unemployment contributions still come out. This amounts to about 10% of the paycheck. Subtract $21. $185/week or about $814/month. Now, with that $814, try to figure out how you would afford the necessities on a monthly basis. This may work as a single person (if barely), but wouldn’t do for a family of any size with a single wage earner.

Example expenses: Food $80 (Not to many people I know can eat for $20/wk and have a healthy balanced diet.) Rent $250 (This assumes a 2-bedroom place with a roommate splitting the rent in a bad section of your average city about the size of Salt Lake.) Clothing $10 (This assumes shopping at Goodwill and maybe a pair of shoes once a year.) Transportation $50 (bus pass). Utilities $75 (assuming splitting with the roommate). Add in some health insurance for $100/month and a modest amount of savings $50, and you’ve got $200 left over a month. This assumes no emergencies, no real clothing expenses, and eating poorly. Make it a couple and suddenly, all that money is gone. $250 more on rent and you don’t even have money left over to add an additional family member to the health insurance or give them something to eat.

I like Frank’s suggestion that we fiddle with the EITC to reward working and not just having babies, or at least not punish those who would work more except for the penalty of doing so, but let’s not complain about how horrible a minimum wage is. It’s meant to provide a floor, not to drive small business owners into oblivion. And there are definitely communities which could use a bit of nudging to provide decent wages for jobs, because a surplus of cheap labor, like most college towns, means that you can get away with minimum wage, because some other schmuck will fill the job as quick as you can put up a sign.

Frank McIntyre

November 9, 2006 at 7:42 pm

Chad,

The thing you are missing is that there is much more competition than one job in one other firm. THat is what disciplines that market. Regardless, the program I considered deals with low wages transparently.

Ardis,

Do you care who pays if the minimum wage benefits middle class families and is paid for by poor families through higher prices?

Ed,

Certainly at $5.15/hour it is not worth much energy trying to get rid of it– especially if it is easy to evade. But if they hike it two bucks, then I begin to wonder– especially when we can get the benefits another way that actually makes sense for helping poor people. Also, I am guessing there will be a lot of pressure this round to build in a cost of living adjustment to make the thing self perpetuating.

Also, understanding the minimum wage leads to understanding living wage ordinances– and those are set at much higher levels.

Thomas Grier

November 9, 2006 at 8:46 pm

I will agree with the comments made a little earlier by Ed. A wage increase as of late isnâ€™t really much of an issue. I think we should be more worried about our new House Speaker Mrs. Nancy about a national salary cap. I think these new proposed Propositions unfortunately are an indication of a much greater shift in economic thought. These are egalitarian economics in embryo. Itâ€™s much safer to cry for social justice than the reality of continued movements towards socialism. Then again I am continually told in my Poli Sci classes that the rich are getting richer and the poor are getting poorer! I am also taught that the only way to â€œfixâ€? the system is for economic leveling across the board. People need to get paid for their abilities and given what they needâ€¦.wait a minute I think I have heard this all before!

From each according to his abilities, to each according to his needs.
Karl Marx

I am not as calm as our beloved prophet. I am a white, engaged, socially conservative and I am a dudeâ€¦.basically I am screwed! I guess just like Korihor we can blame it on our leaders who glut themselves on our labor. The simple matter is the lower income people will always be lulled into these ideals itâ€™s just easier.

MikeInWeHo

November 9, 2006 at 9:12 pm

re: 31 The minimum wage protects people at the bottom from the extremes of competition to ensure a basic income. We don’t live in a purely capitalist society because we would not like the results if we did (even worse economic polarization, etc).

The chatting (blogging?) classes are hypocrites. My guess is that most of the people commenting in here are also sheltered from true competition by our credentialing system. We get a few letters behind our name and suddenly only have to compete for our jobs with a tiny percentage of the population. I have no doubt there are people out there without graduate degrees and professional licenses, for example, who could do my job as well as I do. They’d probably work more and blog less, to be honest. But they can’t compete with me because my profession restricts that. Ditto law, accounting, etc. Sure, somebody will say “What about my brain surgeon???!!!!” That’s just a diversion from the real issue: The rich find ways to protect themselves. The poor need government to do that. In a secular society there is no other entity that can provide for all the poor.

Personally, I would much prefer to live in a less-than-capitalist society that provides for some level of income redistribution, even if it means I wind up less affluent. Even the proposed minimum wage is much too low. I’d definitely support “living wage” laws like they float in uber-liberal towns like Santa Monica. Think it’s $10/hour there, but not sure.

Onward, Ardis ! Bring on progressive taxation a la Sweden !

By the way, I agree with Ed in #35. This is mostly academic. Glad the Dems have finally found an issue that can serve as a counter to the way the Republicans manipulate their base with abortion and gay marriage, though. If the Republicans are smart they’ll just agree to a rise and take it right away from them before 2008.

Chad Too

November 9, 2006 at 9:31 pm

Frank, I appreciate what you’re saying in theory, but in practice I don’t think it is as cut and dried as you’d like. I’ve been in plenty of small towns where there are a limited number of jobs to go around and employers know that if worker x complains about wages too much then there are 6 people lined up outside willing to work at whatever wage is offered them just to have a job.

Could that person up and move to a new place? Sure, but there are opportunity costs. More education? Sure, but if the available jobs don’t value your newly-gained knowledge then you’re still back to square one. I remember being in Provo and hearing that many wages were artifically low in Utah County because their were so many college-educated people in town who didn’t want to leave. The glut of available labor drove wages down because someone equally or better qualified than you would along two minutes after you turned a fixed-wage job down.

Anecdotal? Perhaps, but I still see an imposed floor as a necessary check on the greed of the marketplace. It doesn’t bother me in the least that occasionally (and let’s face it, it’s been basically ten years. What does $5.15 worth of 1997 dollars equal at today’s values?) that number has to rise to keep up with cost of living.

I’m still lining up on the “cost-of-doing-business” side on this one.

don

November 9, 2006 at 9:31 pm

Here’s another real life example. I have owned movie theaters in several states, including my home state of Washington. All of these theaters have been $1.00 admission. 15 years ago there were over 1100 screens with $1.00 admission. Today there is less than 500. It hasn’t been caused because people don’t like the price. You can’t afford the wages…the largest single cost of doing business for us. In Washington State where minimum wage is over $7.50/hr. and going up again in January, you just can’t afford to stay in business at $1.00 admission. There are 0 theaters in Washington with $1.00 admission.

Just raise prices is the rant from those who have never owned a business. If it were only that easy. Raising prices to $2.00 sounds easy. You decrease the number of admissions by raising prices. Your profits are more based on snack bar sales than ticket sales. So a raise in admission prices decreases the attendance which decreases your profits at the snack bar. Net effect – same revenue if your lucky – loss of revenue if you’re not. No extra profits to pay the higher wages. Raise snack bar prices then….yeah sure, will you pay more at the snack bar….people sneak enough food in now to feed half the homeless each day.

I’m not whinning about my theater business, but what I am saying is how easy it sounds to say just raise prices but when you’re actually the owner of a business, where the rubber meets the road, it isn’t that easy.

People working in a theater aren’t the bread winners – providers for the family, why should they be paid like they are? Qualified people should be paid what they are worth. Less qualified paid what they’re worth. An artifical bottom provided by the government isn’t a solution, it’s some of the problem.

ed johnson

November 9, 2006 at 9:34 pm

MikeInWeHo,

A main point of the post was that the minimum wage does not, in fact, “protect people at the bottom from the extremes of competition to ensure a basic income.” It neither targets the people at the bottom especially well, nor does it guarantee an income (since it doesn’t prevent anyone from being unemployed or partially employed and may even lead to those conditions.)

You may of course differ with Frank about this, but you should know that he has spent years studying the issue using both theory and data. If you want to disagree with him, you might at least point to an argument.

And I’m wondering (this is a sincere question) why, if you favor setting the minimum at $10 per hour, you wouldn’t think it was even better to set them at $20 or $30 per hour?

Frank, my comments have been largely tongue in cheek: As much as anyone, I depend on a stable, thriving economy and the peaceful society it sustains — my livelihood comes by providing a luxury service which would be one of the first items clients would dispense with in a serious financial crunch, and I could hardly live the independent, solo life I lead now in the social upheaval of a revolution.

But I don’t want commenters to overlook how these questions affect real people. It’s an interesting exercise on a blog — it’s a bracing intellectual question for academics — it’s a challenge for politicians and the economists who advise them. But for adults surviving on minimum, with more and more being demanded of us in the way of workload and efficiency and covering for coworkers whose jobs have been cut (“do the work of three, or you’ll be next!”), it’s a daily low-level burning. We know how hard we work, we know that the business couldn’t thrive without us unglamorous workhorses, we know that we had better not get sick because we cannot see a doctor. Instead, we see constant advertisements for products and services we can never hope to enjoy.

Debates like this one — and we’re aware they’re going on even if we don’t always understand the nuances — seem like an excuse. As long as politicians and their economic advisers are talking, they can postpone doing anything — meanwhile, our rent comes due again. The frustration and unrest and distrust that breeds isn’t good for a healthy society, either.

ed johnson

November 9, 2006 at 9:53 pm

Chad says: “Iâ€™ve been in plenty of small towns where there are a limited number of jobs to go around and employers know that if worker x complains about wages too much then there are 6 people lined up outside willing to work at whatever wage is offered them just to have a job.”

Maybe so, but I don’t see at all how this is an argument for the minimum wage. If you raise the wage, economic theory would predict that you’d have fewer jobs with even more people lined up outside each one. This is better for those who have the scarce jobs, worse for those who don’t.

don

November 9, 2006 at 10:07 pm

Since Frank has made a study of this I have a question. What is the relationship between low un-employmnet like we have now, with few people out looking for jobs….does that automatically force employers to raise wages to get people to work for them. And then the flip side if the un-employment rate increases does that allow the employers the lower wages because there are so many looking for the job. Or since we are talking about minimum wage it doesn’t apply, or does it apply at all? If we had a higher minimum wage would it effect this. Does raising the minimum wage also increase the un-employment, or will it depending on how high it goes? There’s actually more questions that can be raised simply by thinking about the impact of a “minimum” wage and or raising it.

In a nutshell, price controls for labor function no better than price controls for anything else. This week I’ve received bids from five crews to finish a basement and, according to your theory of price controls, the government should protect these remodeling crews from bidding the price down too far. The problem is that there’s only one way to find out the price to finish a basement to my specifications on my timetable at the house’s particular location: see how much the market (people) charges. According to your theory, the government should protect everyone, including remodeling crews, from having to compete on price because as we know, if a remodeling crew gives me a high price, I’m just going to turn to one of the five crews standing at the door. And because they’re pricing a whole job, there’s no certainty how much they’ll make per hour. It’s possible that they could earn less than minimum wage if they don’t price the job correctly.

DHofmann — If the problem is that you are working long hours (perhaps with multiple jobs), doing work that is honorable and necessary, and you are conscientious in your work and without expensive personal vices, and yet you still can’t go to a doctor or heat your three-room apartment during the winter, then yeah, throwing money at the problem goes a long way towards solving it.

The working poor are not lazy or stupid, and don’t want charity. They want a fair wage in exchange for their labor, but too often lack the power to demand it. Instead of equating poverty with fraud, you could perhaps consider scriptural injunctions against “grinding the faces of the poor.”

Matt Evans

November 9, 2006 at 11:31 pm

Frank,

If you have time, I’d be interested in how labor theorists account for entrepreneurialism. According to classical economic theory (I’m speculating here since I’ve never had an econ course), every person is “self-employed” in the sense that they sell their services to the highest bidder. The wrinkle for minimum wage is that if someone goes door-to-door, no one is obligated to buy their services (washing windows or aerating lawns, for example), or even if they do, to ensure that they net a minimum wage after paying for their expenses and time. But if the window washer does the same work, but for a guy who’s good at selling window washing, the salesman has to guarantee the window washer that he’ll net the minimum wage.

Put another way, the government allows me to lose money working (I could rent the aerator and not get a single sale); the government allows me to earn $0.00 per hour, either as a volunteer, a lawn aerator who only won enough business to cover the cost of the rental, or as a do-nothing video game player; and the government allows me to work for more than $5.15. So for all possible wages between Negative $million/hour and Positive $1million/hour, the government only prohibits me from working for wages between $0.01 and $5.14!

Matt Evans

November 9, 2006 at 11:32 pm

Commenters Who Think They Like Minimum Wage,

If someone spends 50 hours painting a landscape, what is the minimum price the government should allow someone to buy it for? If that artist wants a stable income, what’s the minimum price the government should allow someone to pay him to paint landscapes?

Chad too

November 9, 2006 at 11:52 pm

Matt, that’s all gobbledy-gook to me. I’ve already professed to be working from a layman’s point of view. I’m not saying its invalid, but it certainly isn’t going to play in Peoria.

I still hold to the cost-of-doing-business model. In this country, the minimum an employer can pay for an employee is fixed. If you want to compete in the marketplace, you understand that this is a reality you have no control over and make it work. I’m all for a better system if we can find one that protects workers from being taken advantage of. Until then, this is what we’ve got.

The current wage is hardly usury. I did find a conversion table for 1997-dollars to 2007-dollars and the $5.15 of 1997 is equivalent to $6.60 today. I don’t think it much to expect that over the course of ten years the minimum wage should keep pace with this change.

sr

November 10, 2006 at 12:01 am

Frank,

Imagine you were paid hourly. Which of the following would you rather work for?

A. a university that paid you $30 per hour for your work.

B. a university that paid you $3 per hour but happened to be located in a city with a kindly paternalistic help-the-needy program that would give you the other $27 after you filled out a little paperwork documenting your genuine need.

In case A, you would feel that you owed something to your university, that the people you were working for placed a reasonable value on your work. You might do a better job. You would also derive a sense of dignity from knowing that the people using your services were willing to pay for them.

I think you could counter your arguments by claiming that

1. A modest minimum wage increase simply will not increase unemployment very much.
2. The costs are real but they simply are not all that high.
3. It is not such a bad thing, philosophically, or in terms of fairness, to have the extra costs for employing lawn-mowers, waiters, daycare workers, etc. be paid for by the people who actually use those services (even if some of those people happen to be poor).
4. There is a real sense of dignity that comes from having your salary paid by the people you serve (instead of the government). This is something conservatives should be able to understand. My impression is that poor people consistently indicate that they prefer minimum wage increases over other forms of poverty assistance. If my impression is correct, then as an economist, you must place some value on their preferences.

Of course, 1 and 2 would require some data to back up, but I know that a lot of minimum wage supports claim to have data of this kind…

If I’m a free lancer/entrepreneur, then I assume the risk of not making anything. I also stand a chance of making quite a bit, if I’m good, and even more if I’m both good and efficient. The harder I work and the more efficient I am, the more successful I stand to become.

If there is somehow such a grand market for landscapes that you hire me for a set wage to churn them out, the situation changes. I have stability, true, and my income won’t fall below a given point. On the other hand, no matter how hard I work, or how efficient I am, or how much profit I bring to your business, my rewards don’t increase (yeah, theoretically they could, but practically they don’t, without pressure from outside). There aren’t many employers hiring landscape painters, and there are a lot of would-be artists out there, so you let my coworkers go to save the cost of their taxes and unemployment insurance and other costs. I have to paint faster and faster, and perhaps grant concessions on our original agreement, in order to survive the next time you decide to increase your bottom line at the expense of your employees.

It’s kind of a silly example, of course,because it is possible for a competent artist to go into business for herself and stand the risks and win the rewards of being an entrepreneur. Most minimum wage people, though, don’t have that as an option and are pretty much tied to employers. When was the last time you saw a store clerk free lancing his clerking skills without a store behind him?

So the answer to your question is not a dollar amount, but a discussion of the absolute difference between the entrepreneur and the wage slave.

M

November 10, 2006 at 12:59 am

While I definitely understand where the economic arguement against a minimum wage hike comes from, economics has a significant limitarion. Economics without an ethical lens can only dictate what is economically sound, not what is morally right.

Companies that can afford to pay a living wage and choose not to do so because they don’t need highly skilled workers, they can pretty much take anybody. The argument is that if the minimum wage is too high it creates a supply-demand gap (causing unemplyment). If a company can still create a greater demand than there is supply for thier jobs at $5.15 an hour, then, economically speaking, this wage is too high. Essentially, economics is saying that those without skills don’t deserve a living wage.

Which is economically sound. But I don’t think it is morally right.

Matt Evans

November 10, 2006 at 1:15 am

“I still hold to the cost-of-doing-business model. In this country, the minimum an employer can pay for an employee is fixed. If you want to compete in the marketplace, you understand that this is a reality you have no control over and make it work.”

Chad, the point is that there is no way to *avoid* competing in the marketplace. Whether you’re competing for a job at Walmart or competing for lawn aerating contracts, you’re competing. Say someone is aerating lawns, but makes only $1 an hour because they average to $20 sales daily and their expenses are $32. There is no basis for distinguishing the home owners, who pay him for to aerate their lawns, from an employer, who would also pay him for a service. It is just as irrational to prohibit someone from working for a business if they don’t get $5.15 an hour as it is to prohibit someone from working for a home owner because they don’t get $5.15.

Ardis,

No, my comment wasn’t directed at you, it just followed yours. But thanks for responding.

The time an artist puts into a painting is a poor indicator of its value. Many landscape painters could work for 50 hours and not be able to sell their work for $100, or $2 an hour. If the landscape artist can’t convert his painting time into $2 an hour, is there any reason to prohibit him from taking a painting job at $3? Should we really say, “No job for you until your time is worth $5.15!” I see no reason to say that he can make $2 an hour selling to a dealer, but cannot make $3 an hour selling to an employer. In either situation he’ll trade up as soon as a higher paying buyer comes along.

So my question is: Why should we allow an art dealer, but not an employer, to purchase 50 hours worth of work for $100?

I actually think free lancing is the best way out for most minimum wage employees. Lawn mowing and window washing are great options, as are cleaning homes and offices. Lots of people choose to trade the higher pay of self-employment for a lower paying job that they can forget about when they go home, but that’s just another way of saying that the self-employed work more. Lots more minimum wage jobs are in air conditioned buildings, too. Outdoor jobs, like roofing and road maintenance, pay better than indoor jobs.

Matt Evans

November 10, 2006 at 1:19 am

“I still hold to the cost-of-doing-business model. In this country, the minimum an employer can pay for an employee is fixed. If you want to compete in the marketplace, you understand that this is a reality you have no control over and make it work.”

Chad, the point is that there is no way to *avoid* competing in the marketplace. Whether you’re competing for a job at Walmart or competing for lawn aerating contracts, you’re competing. Say someone is aerating lawns, but makes only $1 an hour because they average to $20 sales daily and their expenses are $32. There is no basis for distinguishing the home owners, who pay him for to aerate their lawns, from an employer, who would also pay him for a service. It is just as irrational to prohibit someone from working for a business if they don’t get $5.15 an hour as it is to prohibit someone from working for a home owner because they don’t get $5.15.

Ardis,

No, my comment wasn’t directed at you, it just followed yours. But thanks for responding.

The time an artist puts into a painting is a poor indicator of its value. Many landscape painters could work for 50 hours and not be able to sell their work for $100, or $2 an hour. If the landscape artist can’t convert his painting time into $2 an hour, is there any reason to prohibit him from taking a painting job at $3? Should we really say, “No job for you until your time is worth $5.15!” I see no reason to say that he can make $2 an hour selling to a dealer, but cannot make $3 an hour selling to an employer. In either situation he’ll trade up as soon as a higher paying buyer comes along.

So my question is: Why should we allow an art dealer, but not an employer, to purchase 50 hours worth of work for $100?

I actually think freelancing is the best way forward for most low-wage employees. Lawn mowing and window washing are great options, as are cleaning homes and offices. Of course lots of people choose to trade the higher pay of self-employment for a lower paying job that they can forget about when they go home, but that’s just another way of saying that the self-employed work more.

Matt Evans

November 10, 2006 at 1:25 am

I submitted a rather lengthy comment just a minute ago, responding to Chad and Ardis. It’s not displaying and I’m too tired to rewrite it. Maybe it will show up later.

The most important point was: Why should we permit art dealers, but not art employers, to purchase 50 hours worth of art-production for only $100? In either case the artist can trade up as soon as a better paying option comes along. Phrased the other-way-around, Why shouldn’t we prohibit art dealers, like we do art employers, from paying less than $257.50 for a painting that took 50 hours to produce? (I’m showing that not all work is worth $5.15 an hour, but that shouldn’t require us to forbid people from doing it anyway.)

Finally, it’s not directly on topic but I love this story: a union paid day-laborers $6 an hour to stand in the 104 degree Las Vegas sun and protest the working conditions inside the Walmart where the average worker earns $10.17 in air-conditioned comfort. Priceless.http://www.lasvegasweekly.com/2005/09/08/awsi1.html

DHofman makes a good point, as loath as I am to admit it. “Poor” in American is not the same as it was a century or two ago. Except for our untouchable caste (the mentally ill/substance abusing homeless), the American poor virtually all have hot and cold running water, flush toilets, color TVs, etc. Contrast this with the situation in our past, or in other countries today.

Just the same, I’m with M in comment 55. Good economics and good morals are not necessarily the same. Jesus was (materially) POOR !!!

TMD

November 10, 2006 at 3:46 am

M: But isn’y the argument from economics really showing that what you think of as morality (but which others might see as being derived from envy and perhaps an effort in self-esteem building pride) is actually having perverse effects?

DHofmann does NOT make a good point. He/she/it makes a bigoted, callous and ignorant equation of “poverty” with “fraud.”

Minimum wage laborers do not necessarily have food stamps. They often have second and third jobs.

Minimum wage laborers do not necessarily have cable or satellite ‘TV. Nor do they often have access to health care.

D, the next time you, a begger, go before your God to seek protection for your day or a blessing of health on an ailing family member, how fortunate you will be when He extends more mercy and kindness to you than you exhibit toward the working poor.

I had no idea that I felt so strongly about this issue until you put up your post, Frank. I’m sorry I had nothing to contribute on the specific idea you propose, and that instead I have contributed toward taking your thread in a different direction. I’ll stop now. George W. Bush and Orrin Hatch and Rush Limbaugh have already driven me out of the conservative political camp; the memories stirred by your post and the nitwitery of some commenters have cemented the door shut behind me. This is my official coming out as a full-fledged social and political liberal. Congratulations.

Frank McIntyre

November 10, 2006 at 9:26 am

I’ve gotten behind in the comments so if I don’t respond to something feel free to make your demand again.

Chad,

If by “doesn’t play in Peonia” you mean that people will not believe it, I can buy that. If you mean that the theory does not apply, I think you probably don’t understand the theory yet.

Ardis,

“Debates like this one â€” and weâ€™re aware theyâ€™re going on even if we donâ€™t always understand the nuances â€” seem like an excuse. ”

I think you are missing a couple things that are central to the argument:

Minimum wages are not actually good for poor people. They are good for a few poor people and bad for the rest of them (ie, for the vast majority of them). They spur unemployment and raise the prices for everyone, and precious little of that money actually goes back to the poor. The program I discuss here helps poor people using the income tax system, which means that it is paid for overwhelmingly by the rich. It also does not encourage unemployment, rather it encourages employment. When you argue that these academic arguments are out of touch and we should just do something, that is, well, out of touch :).

BTW, be a liberal, conservative, or a martian, but that really does not change the fact that minimum wages are lousy welfare policy and labor market policy.

don,

yeah, “tight” labor markets drive up wages. In the presence of a minimum wage they still do that for the more skilled workers, and if the market is tight enough, the minimum wage stops mattering. I think, for example, that the federal minimum wage stopped mattering years ago in several places in the U.S. (CA and New York for example). The labor market already pushed past it. So that is why the 5.15 minimum wage is not worth fighting to get rid of– it was increasingly ybecoming irrelevant all on its own.

Frank McIntyre

November 10, 2006 at 9:34 am

Matt,

Entrepreneurialism is a fun topic, although the data on it are not as good as one might like. For minimum wages it essentially creates a strong incentive to low skilled workers to be entrepreneurs instead of wage laborers (or WAGE SLAVES!). This is distortionary (inefficient) because these switchers would be happier in wage jobs, but this is a way to keep working for the low skilled in the presence of the distortion. In the US, this is probably not a huge effect for the poor, but a sizable one, perhaps, for the teen market. In other countries, self employment is huge and so it could be a going concern.

Frank McIntyre

November 10, 2006 at 9:55 am

M,
It’s true that the standard definition of economic efficiency does not rely on any particular income distribution (so it allows for people to be poor and still be efficient), but economics actually spends a phenomenal amount of energy on questions of redistribution and how to deal with it. If you got a different impression I’m sorry. As for your substantive claim, you should understand that the minimum wage is not actually good for poor people, thus the moral thing to do would be to ditch it. The program I proposed keeps the good parts, while actually helping poor people.

sr,

In the case of a minimum wage, the university would value me at $30 by disemploying enough workers so that my marginal value reaches $30. Great for me and my dignity! But lousy for all the workers who, in your model now think they are worth nothing because nobody is paying them. And there would be a ton of them!

You raise some interesting points so let me go through them:

In 1 and 2 you argue that the costs of the minimum wage (in prices and unemployment) are not that high. Well the costs are proportional and always larger than the benefits, so I guess that tells you that the benefits aren’t that high either. It still isn’t worth doing. In realilty, 1-2 dollar minimum wage hike could easily cost more than the entire EITC program– billions and billions of dollars. My program captures those gains without unemployment, with better targeting, and without making the poor pay for helping other poor people.

“3. It is not such a bad thing, philosophically, or in terms of fairness, to have the extra costs for employing lawn-mowers, waiters, daycare workers, etc. be paid for by the people who actually use those services (even if some of those people happen to be poor).”

We pay for those costs through the market at the market price. And I agree that that makes sense. But this is about a government redistribution program. Would you support a food stamps program that was paid for with a tax on poor people because it “makes sense philosophically”? No, that would be crazy.

“4. There is a real sense of dignity that comes from having your salary paid by the people you serve (instead of the government). This is something conservatives should be able to understand. My impression is that poor people consistently indicate that they prefer minimum wage increases over other forms of poverty assistance. If my impression is correct, then as an economist, you must place some value on their preferences.”

Certainly there is an issue of diginity here. But, as you may have noticed, this is not a welfare handout. This program would come through their paycheck, just like the minimum wage. The main difference is that now the government reimburses the employer for the higher wage he is providing. In fact, perhaps that would be the way to make you happy, just have the money go to the business as a tax credit for hiring these workers. The market result is that the money gets passed to the worker just the same. This solves the preference argument, although let me point out that the preference you mention is almost surely saying that people prefer wage bonuses to welfare style handouts like food stamps. The program I proposed oringinally is no such thing– show me that they prefer wages coming through line A on their paycheck as opposed to line B and then you’ll have an argument! Then you would want to consider the preference effect on people who were disemployed because of the minimum wage.

Frank, my first post was kind of a hit-and-run (true-to-form). But having taken the time to read your tax reform ideas in detail, I actually think it’s not a bad idea, as far as it goes.

Problem is (in general, not your ideas specifically), you can’t address these things in isolation from each other. Yet politics has a hard time addressing issues in any other way. Tax credits cannot be addressed in isolation from government support programs, such as WIC, Medicaid, general welfare, and others. This is because we have to keep in mind a holistic view of the various income groups in the US. Bankruptcy law has to be formed with the whole reality in mind as well. Same with addressing the diminishing amount employers are investing in retirement packages and the growing inadequacy of the 401K movement.

But Congress has to do this one issue at a time.

Maybe the best we can hope for is some good general guidelines that give the professional bureaucracy adequate scope to finesse things.

Matt Evans

November 10, 2006 at 10:37 am

Frank, how would informed minimum wage advocates respond to my question about allowing an artist to price his labor below minimum wage when selling to an art dealer, but not an art employer?

newbie

November 10, 2006 at 10:48 am

Wow, this is frustrating. Facts matter. Careful analysis matters. If a trained oncologist tells you after careful study that ground apricot pits do not cure cancer, no reasonable person would accuse that person of not caring about cancer patients. It is precisely the opposite. And when trained economists tell you that all of the evidence shows that minimum wage laws hurt more people than they help, don’t accuse those opposed to minimum wage laws of not caring about the poor. Especially when they propose alternative ways of helping the poor which are much more likely to help the poor. They are trying to help the poor. Let that sink in slowly–Frank is trying to help the poor. He is not defending the rich.

Frank McIntyre

November 10, 2006 at 10:50 am

Seth,

This lack of a holistic approach is why some single moms can end up with no incentive to work more because all the programs start getting taken away in the same range and she ends up with less (or almost) the more she works.

Honestly, Matt. there really is not a whole lot of intellectual heft behind the pro-minimum-wage crowd, so it is tough to say how they would respond.

I know that one of the best arguments for a minimum wage is if one can show that there is a single employer without competition (this is essentially what Chad was talking about). That employer (a monopolist) will pay too low and so a precisely set minimum wage can be beneficial– both for employment and wages.

Mark B.

November 10, 2006 at 11:02 am

Let’s hear instead about a maximum wage–a multiple of the firm’s lowest paid employees. I’m sure the economists would be able to find plenty wrong with it (z.B., “since people prefer higher wages, we wouldn’t want to stand in the way of their getting the highest possible wages”). But, if the firm’s most highly compensated employees were subject to a confiscatory tax after their compensation exceeded a stated multiple of the lowest-paid guys’ wages, they’d have the incentive to increase those wages, so their own compensation could go up, and they’d want to increase the efficiency of those low-paid guys so they could justify paying their higher wages. And, the low-paid guys would perhaps feel that their work wasn’t simply going to line the pockets of the greed-meisters at the top, and they’d feel more as if they were an integral part of the firm’s success and then they would work more efficiently.

And, it just might help ease one of the reasons the Lord gives for the world lying in sin.

Frank McIntyre

November 10, 2006 at 11:11 am

Mark,

We already do a fair bit of this with high estate taxes (post 2010). Maximum wages reduce the incentive to work for the most productive. Alternatively, your scheme encourages them to fire the least productive so that they can raise their wage to what the market pays them. Wages are not regulatory toys, they are important information signals. Unless you are fixing a recognized market distortion messing with wages will almost certainly hurt more than it helps.

As for helping the sin of the world, perhaps we should follow Alma’s solution in Alma 4– give up the government and go preach repentance! I have yet to find “maximum wage imposed by the government” listed in the scriptures as a way to deal with pride.

Chad too

November 10, 2006 at 11:12 am

Frank,
I did indeed mean that even if the theories woirk, people will have a hard time buying it, let alone understanding it.

Everyone,
I’ve argued way above my head on this and appreciate everyone’s indulgence. This is why I’m not currently chairman of the Fed. I’ll stick to my current we-only-pay-this-much-and-if-you-don’t-like-it-there-are-50-others-who-want-your-job profession. It puts a roof over my head, even if it only pays about half of what others with my experience level and education get.

Frank McIntyre

November 10, 2006 at 11:20 am

Thanks for playing, Chad!

sr

November 10, 2006 at 11:26 am

Frank,

Do you think there should be no minimum wage at all? Or are we just arguing over the number? (The latter is hard to do without looking at actual data.)

“In 1 and 2 you argue that the costs of the minimum wage (in prices and unemployment) are not that high. Well the costs are proportional and always larger than the benefits, so I guess that tells you that the benefits arenâ€™t that high either. It still isnâ€™t worth doing. In realilty, 1-2 dollar minimum wage hike could easily cost more than the entire EITC programâ€“ billions and billions of dollars. My program captures those gains without unemployment, with better targeting, and without making the poor pay for helping other poor people.”

Neither the costs nor the benefits are all that high (compared to something like, say, Bush’s tax cuts for the middle class or Bush’s tax cuts for the upper class). However, the benefits go to individuals who, you agree, need the help. I have heard many people argue (many claiming to have empirical data) that the actual effect on unemployment that comes from raising the minimum wage is tiny. But this is an empirical claim, and of course would have to be checked with data. The cost arising from higher prices would be spread over the population — perhaps somewhat disproportionately on the poor, but still in a pretty diffuse way. If we’re concerned that the wealthy aren’t paying their share, we can always raise their taxes in addition to raising the minimum wage.

“Would you support a food stamps program that was paid for with a tax on poor people because it ‘makes sense philosophically’? No, that would be crazy.”

I agree, but I might support raising subway fares to pay for nicer trains (even if some of the people using the trains happened to be poor). Some redistribution is about taking a big picture and trying to balance wealth. Some is simply about charging people a reasonable fee for what they consume. Some people feel that “reasonable” means market price, but some (reasonably reasonable) people disagree.

“Certainly there is an issue of diginity here. But, as you may have noticed, this is not a welfare handout. This program would come through their paycheck, just like the minimum wage. The main difference is that now the government reimburses the employer for the higher wage he is providing. In fact, perhaps that would be the way to make you happy, just have the money go to the business as a tax credit for hiring these workers. The market result is that the money gets passed to the worker just the same. This solves the preference argument, although let me point out that the preference you mention is almost surely saying that people prefer wage bonuses to welfare style handouts like food stamps. The program I proposed oringinally is no such thingâ€“ show me that they prefer wages coming through line A on their paycheck as opposed to line B and then youâ€™ll have an argument! Then you would want to consider the preference effect on people who were disemployed because of the minimum wage. ”

Well, a small government subsidy might not make a big difference in terms of dignity issues.

But what if we adopt your system and abolish the minimum wage, and we discover that a number of employers start hiring people for a salary of $0 (with government paying 20 percent $9 minus $0, which would be $1.80). Or maybe a salary of $1 (with government paying $1.60).

These changes might occur in areas where the demand for labor is fairly inelastic and the number of workers just happens to be a bit larger than the demand. Then all people who consume the services (by, say, eating fruit or going to restaurants) are now getting a very nice subsidy from the government Okay, your plan is very good for these people. The government is paying a subsidy which is certainly going to somebody, but how much goes to the poor is debatable.

Moreover, if an employer can hire people for $0, can we really expect the employer is going to treat those people with respect? Can we expect people not to notice that their salary is coming through line B (which government pays, and which is contingent on their having children or something) rather than being paid for by the employer?

True, I am focusing on the extreme low end, but the extreme low end is really what the minimum wage debate is about. It is about how to cope when circumstances when there is a surplus of unskilled workers large enough that market competition is no longer able to keep wages above even the barest minimum.

I’ll admit that your approach has some advantages over the minimum wage. But in practice it might mean that many of the people who are now illegally paying their workers $1.80 per hour would get to start legally paying them $0 per hour. People who are illegally paying $2.60 could start legally paying $1. This would certainly decrease unemployment. But it starts to feel more like welfare at this point.

Mark B.

November 10, 2006 at 11:33 am

Frank,

Actually I was referring not to pride but to the more direct statement that it is not given for one man to possess that which is above another.

You are right that compensation is an important information signal. When the Kozlowskis and Ebbers of the world take millions in compensation as their companies go into the tank, it tells us all that they’re greedy beyond measure.

Matt Evans

November 10, 2006 at 11:46 am

That was funny, Chad!

Frank, I’m surprised to learn their aren’t good pro-min wage arguments. I’d have thought they would argue that raising the min wage temporarily compresses the wage pyramid, and that, like pro-inflation arguments, “works” until the market expects future increases. (This also assumes that those working for min wage are disproportionately poor.) That’s why I’d think that setting min wage to automatically adjust with inflation would be self-defeating, as there would never be a shock to the wage pyramid. All employees would require equivalent automated raises, and want their salary set not against the dollar, but as a multiple of min wage.

1. I’m not arguing for minimum wage; I merely said that minimum wage earners care primarily about their income and whether they’ll be able to buy winter coats. If the paycheck increases, chances are the wage earner really won’t understand whether the increase comes through a rise in minimum wage or through your transfer plan, and really won’t care.

2. Why do you assume (65) that minimum wage earners would be happier as wage slaves than as entrepreneurs? Why do you think the benefits of entrepreneurship can’t be appreciated by the low skilled as well as the highly skilled?

3. I didn’t say you were out of touch, or anything like unto it. I said — or thought, and believed I had said — that real people suffer real shortages while the debates go on, and it appears to working people praying for relief that another round of debates is mere delay while they tighten their belts one more notch.

4. When other costs increase — the price of materials, the cost of transport, the expense of bagles for the boardroom — employers seem to find a way to handle the increase by improving efficiencies or raising the price of their own products or accepting a narrower profit margin. Why is an increase in the cost of labor different? If employers adjust for the cost of materials, transport, and bagles, why do they balk at paying for labor?

And newbie (69), insofar as your comment may be directed to me, read this slowly: It’s DHofmann (who slanders the working poor as being welfare cheats and outright thieves) whom I said didn’t care about the poor. Not Frank, or anyone who may have criticized minimum wage while endorsing an alternate plan that could conceivably help the working poor earn a living.

Isn’t minimum wage just a political ruse? I mean, if minimum wage truly doesn’t help the poor (like you say Frank), then it seems to just be an easy political point to gain the votes of the poor. If you tell a segment of society that you’ll raise their wages the chances they vote for you increase. What is the opposition to do? Explain that an increase in wages is in fact NOT a good thing? Yeah, go tell that to someone that is barely paying their electric bill, “if you don’t get a wage increase it’s actually BETTER for you.” Not bloody likely.

It’s interesting that the poor want the government to increase their wages and the rich want the government to decrease their taxes. I don’t know what that means, it’s just an interesting observation.

sr

November 10, 2006 at 12:16 pm

Okay, suppose that in a friendly little town X the market rate for unskilled labor is exactly equal to the minimum wage of $5.15 per hour.

However, then some circumstages (a factory closing, a wave of people reaching working age with too few retirements, etc.) suddenly result in a surplus of unskilled workers. Let’s say there are now 1500 unskilled workers but only enough meaningful employment for 1000 of them. The 1000 jobs are important (employers would be willing to pay more for them if they had to), but they are not willing to pay much at all for workers beyond the 1000 (there is simply not any more fruit to be picked, restaurants to be waitered, etc.)

Next suppose that the cost and uncertainty of moving is great enough that unskilled workers in this town are willing to work for as little as $2.60 per hour, and consider some scenarios.

1. The minimum wage is in place. In this case, 500 people are forced to move. They are very unhappy, but the 1000 who stay have a reasonable life.

2. There is no minimum wage. In this case 500 people are forced to move, and the 1000 who stay suffer a good deal. If there is a monopolist employer, then this is a windfall for the employer who now gets to keep an extra $2.55 per employee. If there are many employers, they will have to compete by lowering prices, and consumers will reap the benefits. Either way, things are bad for the 1000 who stay. In the long run, employers may be forced to raise wages again but this may take a long time.

3. Under Frank’s final plan (in which minimum wage is abolished), the employer is now allowed to pay $1 per hour for each employee, and government contributes $1.60 (twenty percent of $9 minus $1) to each of them. 500 people still have to move. And the government subsidy will wind up in the pockets of the employer (in the case of monopolist employer) or the consumers (in the case of the many employers). Either way, the subsidy does not go to the poor, because the employers simply lower their wages by the amount of the subsidy. Somebody benefits, to be sure, but not the poor.

If this occurs, then I don’t think it will be lost on people that a large chunk of their paycheck is coming from the government and not the employers (and is means-tested and depends on famliy circumstances, etc.). This will affect dignity. Imagine the extreme case in which the employer is paying $0 and the government is paying $1.80. Starts to feel a bit more like welfare. Both the employers and the employees are likely to notice what is going on. This would affect power and politics and self-perception in ways that low income people aren’t happy with.

It may be that some reasonable combination of a fair minimum wage and Frank’s proposal could be made to work. But then we’re arguing numbers, and that takes data.

Frank McIntyre

November 10, 2006 at 12:18 pm

Rusty,

The minimum wage actually does help those who keep their jobs– thus by disemploying the low-skilled you raise the return to the medium skilled substitutes. This is why unions are always heavily for minimum wages, as it eliminates competition for their services. Of course, helping the middle class at the expense of the poor has long been an implicit role for the government :).

Ardis,

1. I agree.
2. I am referring to the ones who would be wage workers, but then get disemployed and so move into self-employment. I say they are happier as wage employees because that is what they picked when they had the choice. Obviously, some of them probably were wrong, but on average, the fact that they picked wages is the best evidence that they prefer wages.
3. I’m glad you don’t think I’m out of touch!
4. The other cost increases you speak of are driven by the market, and so they are signals about how to distribute goods. They can happen to the cost of labor too, which also rises and falls. A government-imposed wage change is not such a signal, and so it distorts the market resulting in a net loss to society (in this case, probably the poor who are disemployed). It sounds fuzzy in words but I’d be happy to show you the difference on a white board if you are ever down at BYU!

Frank McIntyre

November 10, 2006 at 12:54 pm

sr,

This is very clever, you have rediscovered that with vertical labor demand and horizontal labor supply the minimum wage is non-distortionary. Essentially, in such a model nobody is deciding anything interesting, they are just static automatons and there are no diminishing returns to anything. The problem is that these assumptions aren’t true, empirically nor are they theoretically attractive. Demand curves slope down and supply curves up owing to diminishing marginal returns in both cases. I am not denying that in the very short run, some town might have some effects similar to what you point out, but not in the long run, which tends to smooth the curves out as people adjust and react.

So while your model is admirably simple, it is too simple to allow people to respond in any meaningful way, and so is not useful for thinking about a federal minimum wage. It also entirely drives your result that the money is going to the employer, not the worker (and the accompanying arguments about it being welfare), and it drives the results that a minimum wage doesn’t hurt anybody.

On dignity, you want a preference function where people feel good about having a high marginal productivity as expressed in their wage. As I said before, the minimum wage achieves this by driving others out of the work force which, by diminishing returns, increases worker’s marginal product. But surely driving some people to have zero marginal product when they are disemployed is the greater crime here, with the greater implications for people’s dignity.

Adam Greenwood

November 10, 2006 at 1:16 pm

“Itâ€™s meant to provide a floor, not to drive small business owners into oblivion.”

I think Frank M.’s point is that we should be more concerned with what the minimum wage does than with what its meant to do.

“perhaps we should follow Almaâ€™s solution in Alma 4â€“ give up the government and go preach repentance!”

Taking a page out of Kuo’s book Frank?

Of course, a “fast from politics” may be a little more palatable to the Christian Right, now that the GOP has taken a drubbing nationally. It’s always easier to quit when it just isn’t fun anymore.

Adam Greenwood

November 10, 2006 at 1:27 pm

“When other costs increase â€” the price of materials, the cost of transport, the expense of bagles for the boardroom â€” employers seem to find a way to handle the increase by improving efficiencies or raising the price of their own products or accepting a narrower profit margin.”

One of the ways employers improve efficiencies is by doing more with less. As the price of materials and transport and bagels rise, many businesses will cut back on the amount they were planning on using. Hence the intuition that the minimum wage means less jobs for the poor.

Mark IV

November 10, 2006 at 1:37 pm

â€œWhen other costs increase â€” the price of materials, the cost of transport, the expense of bagles for the boardroom â€” employers seem to find a way . . .

Except for when they don’t. Businesses go under all the time because of rising costs.

Adam, I know that’s what happens, but why should it? Do you produce fewer cookies for sale because the price of flour goes up? Probably not, because without product you don’t have income. Do you stop delivering your cookies to the stores because the price of gas goes up? Probably not, because without getting your product to market you don’t have income. The choice for doing more with less always seems to be to fire an employee and make the rest work harder and faster without increased reward for fear of losing their jobs. Why? Maybe because low skilled workers don’t have the power to protect themselves by pushing the employer as hard as the flour wholesaler and the gasoline company do. Employers take the easy — cowardly, immoral — way out because the market (and the government, and habit, and Republicans, and other powerful businessmen) allow them to do so.

I think I’m back to hailing the coming revolution.

Adam Greenwood

November 10, 2006 at 1:54 pm

“Adam, I know thatâ€™s what happens, but why should it? Do you produce fewer cookies for sale because the price of flour goes up? Probably not, because without product you donâ€™t have income. Do you stop delivering your cookies to the stores because the price of gas goes up? Probably not, because without getting your product to market you donâ€™t have income.”

You do produce fewer cookies and you do transport fewer cookies than you would otherwise. Prices matter.

Anyway, if we take what you’re saying seriously, than we’d not only need a minimum wage but laws forcing employers to keep employees and not to raise the work hours and so on. This has been tried in lots of places during the 20th Century and its failed badly. You’re not hailing the coming revolution, you’re hailing the revolution that’s already come and, mercifully, has mostly left.

Jay S

November 10, 2006 at 1:57 pm

Ardis brings up a good point. While i understand the economic argument that raising wages would then force the employer to lay people off, however, I don’t think this happens as often as you would think. Why? Because employers allready have an incentive to maximize margins and lower labor costs. Essentially, if the work force COULD get by with less work, they would.

In response to the entreprenurial argument, I agree, you can work for less than min wage per hour. You can also get the upside. Thus the aerotor renter may just break even, or may have a good day, do 20 lawns and make $200. The cashier has no such upside. If you want to put the cashier on commission, go ahead and pay less than min wage. Retail stores frequently do this, as do car sales etc. you can also play employees for piece work (the baker – $1 for every loaf of bread, etc).

Here is what I find most convincing. Every human being on this planet should be given shelter, food, clothing and medical care. Every human being should work to the best of their abilities. An employer is borrowing the labor from the bank, In return they should return the economic means to provide for those needs. Otherwise they are profiting at the expense of the government and the rest of society. If a business cannot be economically viable (ie giving back to society in the form of a wage enough to support its workers), it should not exist! If for some reason a market distortion exists, and a necessary business cannot be viable on this wage, tax credits and other incentives can be given to the business. We have a long history of this (The intercontinental RR springs to mind, after having just finished a book on this). We see it today, with the employment of handicapped people where the business gets paid for employing the person.

Jay S

November 10, 2006 at 2:02 pm

“You do produce fewer cookies and you do transport fewer cookies than you would otherwise. Prices matter.”

I would disagree – You only produce and transport less if you have insufficient capital to meet these expenses. Your profit is in the margin of cookies, so to you it really doesn’t matter if your cookies are $1 or $1.20 if you can sell the same amount, except to the extent that it impacts the ROI for any capital investiture.

Great! Glad to hear it, Adam (89). I suppose this means, then, that you have willingly shouldered the burden of protecting YOURSELF from exploitation, the way you expect low wage workers to do. You are vetting all medicines to be certain that you aren’t being exploited by snake oil salesmen, and are inspecting and abating the toxic emissions from your friendly neighborhood plastics plant, and are inspecting all automobiles sharing the road with you to be certain you won’t be exploited by somebody’s faulty brakes, after, of course, having made certain that the road itself is safely designed and built with the quality of materials you personally paid for — and have studied the design of your daughter’s crib to be certain it isn’t going to exploit her by collapsing with her head between the rails, and have armed yourself to stand guard round the clock to ensure that you aren’t exploited by a housebreaker.

Or is it just protections that don’t improve your own lot that you are grateful to see fall by the wayside?

Herodotus

November 10, 2006 at 2:26 pm

In my mind a lot of this boils down to the question of how much inefficiency exists in any given industry. Where markets are maximized and there is very little margin, people will of necessity be laid off. Where profit margins can tolerate it, the increased minimum wage wonâ€™t have much impact on employment practices. I have no idea how much margin exists in our economy. I imagine that this may differ in each segment of our economy. I suppose weâ€™ll find out.

ed johnson

November 10, 2006 at 2:32 pm

“Do you produce fewer cookies for sale because the price of flour goes up?”

All this stuff happens on the margins. A particular producer might or might not produce fewer cookies. More likely, one of the cookie producers that was struggling goes out of business, or someone who was planning to enter the business decides against it. So fewer cookies get produced overall. These things are hard to observe, but they’re real—the laws of arithmetic must be obeyed.

The same thing happens with minimum wages. If you raise the minimum wage, you probably won’t see any layoffs at your local MacDonald’s. But that doesn’t mean there aren’t employment effects…some struggling pizza joint will go out of business, or someone will decide not to open a second location for their restaurant chain, or maybe even MacDonald’s will hire one fewer worker next year, or something.

Frank McIntyre

November 10, 2006 at 2:38 pm

Jay,

My proposal is a lot like paying the employers for hiring handicapped people. As for the rest of your argument, you have some great ideas about what we should have to pay for, but the minimum wage is a bad way to do it, because it hurts some poor workers in order to help others. Perhaps you think it sounds nice that firms should be responsible for the life-needs of workers (even though they are not getting the life-benefits). But can we do something else instead that also sounds nice and does not disemploy workers or raise prices on poor families in order to help non-poor families?

“Because employers already have an incentive to maximize margins and lower labor costs. Essentially, if the work force COULD get by with less work, they would.”

Come on Jay, did you really think the argument against minimum wages was that flimsy? You are thinking of a business as a static enterprise needing a certain number of employees. This is actually the same mistake sr made above– a vertical demand curve. This is simply not a good way to think about the low-skilled labor market. In reality, the number of people a business wants to hire rises as wages fall. There are actually some concrete examples of that above from don who owns a business. And some businesses really do fail as wages rise– disemploying all their workers. Both of these facts mean the demand curve is downward sloping.

Ardis, you don’t know very many small-business owners do you? Your portrayal of employers being evil, money-loving and all-powerful is ridiculous. Try owning a business where you have to pay the lease, pay for labor (usually the highest of all costs), pay for goods, pay for distribution, pay for advertising, pay for insurance, pay for legal, pay for accounting all while still trying to keep people buying your product/service. Do all this, be sure to be profitable so that (aside from keeping your business afloat) you can pay your own bills at home and have a roof overhead and food on your kids’ plates. Then get back to us about how the employer owes the employees a raise for doing nothing. And keep in mind, McDonalds is a small business (the “employer” is the local franchise owner, not the suit in Illinois).

Rusty, since you ask, I’ve been working full time for 30 years. Except for the delightful time I spent with the fire department between high school and university, I’ve always been in private enterprise. I worked five years for a company with 150 employees; with that exception — which might still count as small business anyway — I’ve worked for firms with from 4 to 12 wage employees, in addition to the owners. Except, again, for the fire department, the nature of my work has always involved awareness of fiscal matters. I was aware of the costs of everything from paper clips to building rental to payroll to business development; I regularly took minutes at meetings where philosophies regarding partnership compensation and employee payroll and business expenses were discussed in full detail, and where decisions and the reasons for those decisions were laid out, I knew what every employee and every owner took home. I measured and graphed employee productivity, including my own.

When I was young I sneered at unions and was confident that I was smart and hard-working enough to negotiate a salary that would be fair to me, without the help of anybody in the world. For a while that seemed to be true. I willingly gave loyalty to my employers and expected the same in return. I worked hard, and cheerfully did whatever had to be done, when and how it was needed, whether it was part of my job description or outside of normal working hours — whatever it took, I did. Eventually and gradually, though, and very much against my will and nature, I became cynical. I had to accept that my own hard work and contributions were seldom proportionately rewarded. I’ve heard too many bosses discuss which workers to fire in order to save money, while saying “the others can pick up the slack” without looking at the sometimes superhuman effort already being put forth. I’ve heard too many bosses dismiss unfair employment practices with a glib “if they don’t want the job, let ’em find another one — there are plenty of hungry students around Provo.” I’ve seen an ever increasing disparity between the salaries of top- and bottom-earners, without a corresponding gap in productivity. I’ve seen pension promises disappear in bankruptcies while bankers and business owners pocket fortunes for “saving the company.” I’ve seen glib people dismiss the poor, the way I used to do, certain that the poor were poor because of character failings or general worthlessness — and the more experience I gain with the world, the more certain I am that I was wrong.

But while I’ve been truthful in this comment, some of my earlier comments have been exaggerated to push buttons. I’m neither as smart nor as stupid as I’ve tried to pretend here. I *am* genuinely irritated by comments that suggest the commenter deserves his good fortune because, well, “just because,” while the poor deserve their fate for no other reason than “it doesn’t affect me.”

Too many people look at the minimum-wage law as a law to force employers to pay higher wages…
but isn\’t it really a law to force employees to only sell their labor for a certain minimum set price?

For example, if I showed-up at the local semiconductor plant today with absolutely no specialized skills, and asked if I could work for only $1/hr. /w no benefits to start as an apprentice technician, I\’m sure my offer would make good business sense to any manager in the plant, but they would still have to reject me outright for fear of the heavy hand of the law and the illegality of such an employee relationship.

Most immigrants who don\’t speak English, people with low skill sets, teenagers, the uneducated, and people with social or neurological difficulties are the ones who typically enter the work-force commanding only minimum-wage….
Raise the bar for entry by raising the minimum wage, and suddenly many of these people cannot provide value to their employer that is equal or greater than the minimum-mandatory wage and are thus either not employable, or must be subsidized by other workers who do provide value until price-inflation cancels-out the wage-inflation.

And such harmful laws are called compassionate, liberal, and responsible?

Furthermore, what most people don\’t realize is that $5.15/ hr. is not a cost of only $5.15/hr to the employer who also has to pay hidden taxes and hidden mandatory expenses like workmans comp. insurance, unemployment insurance, matching federal tax and even state taxes as well as numerous other expenses associated with hiring an employee. An employee on minimum wage still costs an employer at least $7/ hr. by the time these other mandatory expenses are figured into the equation. Raise the minimum wage to $7/hr. and the actual cost of an employee will actually raise to something more like $9/hr. And frankly, some people just cannot provide $9/hr. in value and thus cannot command that wage. Politicians who want to raise the minimum wage must realize some of these economic realities, or why would they stop at a minimal raise rather than go straight to an even more \”compassionate\” living wage like $40/hr.

Dang, the problem of being so busy is that when an interesting thread starts up comments are already above 80 before I notice.

Anyway, a few thoughts.

Roland (#3), I fully agree. The one thing a lot of people forget is that with the huge illegal immigration population many businesses will simply move to hiring more of them. Why should I pay $9 for a menial job when I can get someone for half that who probably will even work harder? It’s that or just not doing those menial jobs as much. Even if I don’t, I’ll probably outsource to some company that does. For instance I can’t help but notice how many cleaning companies and grounds companies have an astounding amount of latino workers. Are they all legal? Perhaps. Or perhaps these companies can charge the rates they do because of their lowered costs.

The problem of teenagers is also a big one. I constantly hear about the working poor trying to support a family on these jobs. The obvious question is never asked: why are these the jobs they are taking? i.e. there are other problems at work that are being neglected. And those probably have a much higher impact.

Higher minimum wage is nice for politicians because (1) it doesn’t appear to be a tax (even though in many ways it is simply a hidden one); (2) it makes politicians appear to be helping the poor while they really aren’t. Shifting from a $7.50 job to a $9 job doesn’t take you out of poverty if you are the primary wage earner); (3) it avoids regional issues (i.e. is $9 in SF really equivalent to $9 in Idaho?); (4) it makes great fodder against those who oppose it when the reasons are nuanced. (Nuance doesn’t work well in short-attention span debate or TV news)

Ardis, I can sympathize with your plight. However realistically Provo and Orem are just an intrinsically unique situation. You have something like 80,000 students here once you add in all the schools and small technical training programs. Then you have the people who for social reasons (i.e. dating members) stay here. (That’s largely why I stayed when I graduated) Then you have a lot of young married couples where one spouse wants a job before getting pregnant but isn’t interested in a career. And we’ve not even counted the kids out of high school who for various reasons aren’t in school. Then there are the high school kids…

That means you’ve got a massive body of people looking for low skilled jobs.

Realistically the implication is that you either take a job in a more narrow field that requires lots of training, you luck out at being at the right and place for a job, or you do something that requires a lot of self-motivation and effort but which pays little initially but may pay a lot in the long term. That might be sales, real estate, or starting your own business. I knew enough people who started and ran successful businesses while going to college that I know its possible. And I’ve started two businesses here in Provo, even though for part of that time I had to work temp construction jobs to pay the bills.

But realistically that’s the choice for living in Provo. I suspect that were you to move elsewhere things would be different. You wouldn’t be in an area with a *ton* of kids, all willing to do low skilled jobs.

“The problem of teenagers is also a big one. I constantly hear about the working poor trying to support a family on these jobs. The obvious question is never asked: why are these the jobs they are taking? i.e. there are other problems at work that are being neglected. And those probably have a much higher impact.”

Yes, Clark, you’re probably right, that there are other, higher impact problems at work. I’ve avoided even mentioning this as a woman’s issue because I think I’m the only woman participating, but here’s a real life example of one class of such problems:

Women have filled nearly all the clerical positions in firms where I’ve worked. No surprise there. They very often are the sole or primary breadwinners, either because they are single mothers or because, in Provo, they are the working wives of non- or part-time-working students. There’s a lot of competition for those clerical jobs because they have better hours and nicer surroundings than the other work available to most such women, and although the pay is near minimum ($6.50-8.00), wages are still a bit higher than those other jobs offer.

The firm decides to cut costs, and the minimum wage teenage runner is the first to go — that’s okay, because some secretary can dodge over to the bank and run to the courthouse on her lunch hour. Then the associates don’t really need their own secretaries, do they? The partners’ secretaries can divide that work among them, so two secretaries are let go. Give one of the secretaries the title of office manager (give her a token 20 cent raise), and she can order supplies — we can let that clerk go now. The cleaning woman doesn’t charge much, but we can still save her costs by having the receptionist vacuum the office, and surely some one or other of the secretaries won’t mind wiping up the sprayed pee in the executive wash room — she wants to keep her job, doesn’t she? She’s seen four other women and a kid get fired in the past couple of months, so she bites her tongue and picks up a sponge. And why are we paying for a receptionist anyway? Move one of the surviving secretaries to the front desk where she can greet visitors, tell all secretaries to pick up any phone that is ringing, and can the receptionist. Anyone who complains is the next to go. Raise their wages to compensate for the added workload? Out of the question! We started this spiral to *save* money, not give raises for doing nothing!

That’s what I mean by exploiting minimum or near-minimum wage workers, and what I mean by saying that such workers are powerless to negotiate better deals.

Clark (100), I *did* go into business for myself, although pay had very little to do with it — I probably don’t clear minimum wage now, if you figure in all the hours I work and all the product I cheerfully give away because I made decisions of how I wanted to live life. I’m satisfied — improved quality of life trumps cash, in my book, but then I don’t have children looking to me for support, either. I doubt it would be all that much different were I to chase the same work in Salt Lake as I used to chase in Provo.

My own experience doesn’t make me forget those who are in the same boat I used to be in, though. It doesn’t make me unaware of the unfairness of too many employers toward their employees. It doesn’t make me think the poor “deserve it” because they/we’re all welfare frauds and charity cheats, the way some have suggested. I’m not prescribing the answer (maybe it’s minimum, maybe it’s Frank’s option, maybe it’s something else) — I’m just arguing against those who insist it’s kosher to do nothing.

Ardis (#101) I think there is no debate that women are in various ways discriminated against in Utah county. Further up and above that you have the fact women aren’t viewed as properly seeking a career. This means some are less willing to hire them. (Why hire someone for a long term job if, chances are, they’ll get pregnant in a few years and quit – and that’s ignoring the more sexist views) You also frankly have a lot of women who take degrees in areas perhaps not as wise if one wants a career. While things have improved since I was there, the demographics of say the engineering program versus education still perhaps illustrates some unwise choices. (Although I’m told in the sciences proper women have made massive inroads)

I don’t think people are saying “the poor deserve it” depending upon what one means by that. But I do think we each have a responsibility to focus on careers. If one starts up a family with no thought to career one shouldn’t be surprised that one struggles. If anything this is a bigger issue for Mormons who tend to marry young and have children young which can be a big issue for a career.

Regarding your example, certainly there are bad work situations. The problem is, however, that people are primarily going to clerical jobs when (a) these are low paying and (b) there is a glut of clerical workers. I understand your point. But realistically for the individual the wisest thing is to (a) move or (b) find a different sort of job.

Ardis (I’ve finally had time to catch up on the reading of the other comments) It seems like your ultimate point is that unskilled workers are not treated well. I agree that is bad. However, consider for example your clerical worker who is asked to take over some cleaning jobs. Both jobs are unskilled. Why is the clerical worker being abused whereas say a person brought in to clean the toilets isn’t?

Ultimately the issue is the nature of unskilled workers when there are too many unskilled workers. That’s fine but realize that unskilled workers by their nature can contribute a limited amount to a business.

Now there’s no doubt there are bad employers out there. And while it may be a surprise to some, they frequently mistreat their skilled better paid employees as well. Further these businesses are often run primarily on politics more than effectiveness. Sometimes these businesses survive on momentum – often they go under.

It seems though that your ultimate problem is less about pay than about Christlike behavior in offices. To that I agree. But I don’t think that the government ought necessarily be involved in that except in exceptional cases.

The ideal situation is for workers to become skilled in such a way that they have more power. Merely mandating purported power typically does nothing.

newbie

November 10, 2006 at 8:49 pm

Suppose I own a gas station. Due to my particular location, cost structure etc. I need to sell gas for $3.00 a gallon in order to pay my employees enough to give them an adequate standard of living and to do the same for my family. But the guy down the street sells gas for $2.75 a gallon. Who among you would buy from me when the guy down the street sells for less? Are those who buy for less when it is offered at that price exploiting the business who is selling for less? Why is ok, even laudable, to shop around the best deal when one is buying goods, but it is not ok to buy services ie. labor, for the cheapes available price?

sr

November 10, 2006 at 10:01 pm

“This is very clever, you have rediscovered that with vertical labor demand and horizontal labor supply the minimum wage is non-distortionary. Essentially, in such a model nobody is deciding anything interesting, they are just static automatons and there are no diminishing returns to anything. The problem is that these assumptions arenâ€™t true, empirically nor are they theoretically attractive. Demand curves slope down and supply curves up owing to diminishing marginal returns in both cases. I am not denying that in the very short run, some town might have some effects similar to what you point out, but not in the long run, which tends to smooth the curves out as people adjust and react. ”

My assumptions are not completely true. But it seems that the remarkable thing, empirically, is how close my assumptions are to being true. On the demand side, unskilled labor is a lot like gas. Price changes from $2 per gallon to $3.50 per gallon and most of us continue to consume more or less the same amount. Small changes in supply lead to large changes in price. This may be why, in the past, minimum wage increases simply have not led to the unemployment spikes that some people have feared. In fact, from all I’ve read, there is a good deal of disagreement among economists over the extent to which minimum wage increases unemployment — it has not been easy to discover this phenomenon empirically, at least not in a very large magnitude, and there are loads of counterexamples. Read the Wikipedia article on “minimum wage” to get a few links on both sides — and fix it if you don’t think it’s fair. :)

On the supply side, unskilled labor is not so much like gas. Poor people are not nearly so portable. And they are not so happy about having short term (which would mean years) gluts in regional supply drive their wages to horrible lows.

By the way, Frank, my assumptions do not have to be completely true in order for MOST of the money from your proposed subsidies to wind up benefiting people besides the poor. Your proposal allows you a lot of control over who pays the cost (the taxpayers) but not very much control over who reaps the benefits (some combination of the employers, the consumers, and the workers — but the proportions could be anything). I’ll grant you that all government redistribution programs are, necessarily, imperfect — but I’ve yet to be empirically convinced that your proposal is less imperfect than a minimum wage increase. It seems that you are heavily subsidizing employers who pursue low-wage-high-turn-around strategies, at the expense of employers who pursue long-term-human-capital-growth strategies. (I just learned these words from Wikipedia. See how smart I’m getting?) Anyway, at first glance it appears that the negative effects of your proposal could be significant and the positive ones might be quite small compared to the cost.

Do you have a link to, say, an economic study by someone who is convinced that your idea is a good one? Do you have any empirical data from a country/region that has implemented a proposal like yours, and maybe a comparison with minimum wage increases? You’re the economist. Give me something convincing.

Jeremy

November 10, 2006 at 10:40 pm

Did I miss it, or did no one yet respond to the article to which Jonathan linked in the Note from All Over? Particularly, what of the petition signed by 650 economists (including Nobel winners) calling for an increase in the minimum wage? (I’m sometimes suspicious of such petitions–recalling the recent ones from “scientists” opposing evolution etc.–but the Nobel winners probably have some valid points of argument, no?) I’m not trying to provoke; I’m just wondering what the conservative response/critique would be.

Also, to jump back up the thread a bit: Matt, the landscape painter example is just too clunky to deal with in a meaningful way. For one thing, that’s not necessarily the way an artist would operate from a business standpoint. A piece may more likely be sold through gallery representation, and probably not sell for below a certain threshhold. Also, depending on one’s work habits, it be extremely difficult for a painter–like a writer or a composer–to quantify hours spent on a work. Does an unproductive hour spent staring at a blank canvas count? What about the time one spends in the shower or working in the garden, with the brain whirring away thinking about subject matter or formal concepts? Goodness knows that’s when I’ve had some of my creative breakthroughs — off the clock. Things just get a little fishy in the arts. (And, frankly, we like it that way.)

And finally, an artist, as an entrepreneur, assumes risk. That’s the difference between employer and employee. For the same reason, the workers employed by the lowest bidding contractor for your basement job wouldn’t be the ones assuming the risk if the contractor underbid, just as they normally wouldn’t get a cut of the profit margin (beyond their agreed-upon hourly pay) if the contractor landed a job with a very high bid.

To use a recent example: we received several bids to have our roof replaced. The highest bid was a full 100% higher than the bid we went with. I strongly suspect that the winning bidder’s workers made about the same hourly rate as the workers employed by the higher bidder would have. The contractor we went with assumed the risk of a smaller profit margin in order to lessen the risk of not getting the job. That’s what entrepreneurs do: assume risk. As it turns out, even though the winning bidder did a fantastic job, he ran into some troubles — equipment problems, inclement weather, and a minor accident that caused some damage to our house (an unusually strong wind storm blew off a tarp and cause some water damage). Because he was a responsible entrepreneur who was willing to face the consequences as well as the benefits of the risks he assumed, he paid his employees the agreed-upon hourly rate, even though many more hours were involved in the job than he had anticipated. His company sucked up the loss, and, I learned through the grapevine, just barely broke even on the job. Sucks to be him. But that’s the risk he runs as an entrepreneur. His employees, having chosen not to be entrepreneurs, rightly count on the paycheck.

Frank McIntyre

November 10, 2006 at 11:34 pm

sr,

I hope I made it clear even in the original post that I understood that empirically we don’t know who is paying for the minimum wage. It is almost certainly some combination of workers, firms, and consumers. As I pointed out, if it is consumers, this is a lousy program because it is a mildly regressive tax distributed as much to the rich as to the poor– a disaster for targeting and regressive to boot! If it is workers, this is plausibly even worse. And it is actually really unlikely that it is firms if there are no unemployment effects.

Your assumptions actually have to be perfectly true for the minimum wage to not cost more than it benefits. And even then, it still is a lousy redistribution program, one that no one would ever dream of supporting on its redistributive merits, because the money does not move from rich to poor.

As for my program, I actually have a sneaky advantage that you missed. Since I am targeting one small segment of the low-skilled population (those supporting children or some other equivalent criterion), this means that the benefits will accrue to the worker– because competitive firms have to pay equivalent (to them) workers the same. So I actually know that the targeting is pretty good, and I know that the money is coming from the wealthy. As long as the EITC recipients are not a large chunk of the market (and they aren’t) then I am in the clear.

So the minimum wage helps mostly non-poor and hurts lots of people, some of whom are almost certainly as poor or poorer than the ones helped. My proposal mitigates those disadvantages and targets those we wish to help.

Frank McIntyre

November 10, 2006 at 11:49 pm

Jeremy,

I would not make too much of those Nobel winners. None of those Nobels are even labor economists, much less specialists on the minimum wage. They are the guys that like to sign things. And very few economists even realize just how few minimum wage workers are poor, as it requires some specialization in the subject.

If you want a group with some actual high-profile labor economists behind it (as opposed to the sometimes shady work at the economic policy institute), try the employment policies institute– epionline.org.

Also, shame on you for exploiting the working man! Next you’ll start claiming that people should be allowed to freely enter into employment contracts!

Mark IV

November 11, 2006 at 12:08 am

Jeremy, # 108 said,

His company sucked up the loss, and, I learned through the grapevine, just barely broke even on the job. Sucks to be him.

Yes, it certainly does. And if he is like every other contractor in the building trades that I have known, after one or two more jobs like that, it will suck to be his employees, because he will let them all go. Profits are what makes jobs possible.

Jeremy

November 11, 2006 at 1:20 am

110 and 111:

Exploit the working man? All his employees got their paychecks, the owner just didn’t get much of a margin. He’ll probably not bid as agressively, or at least he’ll be more cognizant of unexpecteds, next time. Of course profits are what make jobs possible. The point I was trying to make was that Matt Evans’s example had the risk trickling into the wrong places. If there’s a demand for the service, the employees will find other contractors to work for if this one goes under because he can’t manage the bidding process successfully. Somebody would have gotten my bid, which means somebody would have employed six dudes to do my roof.

Jeremy

November 11, 2006 at 1:22 am

Also, Frank, what are your thoughts about the rest of the post? (The Nobel thing was just a postscript.)

sr

November 11, 2006 at 1:33 am

Frank,

Okay, I’ll concede that if you limit your scope far enough (a small segment of a small segment of the population) you can hand out some money without distorting the wage markets very much — although you do encourage the very poorest people to have children they may not otherwise have. Someone making $1 per hour has a tough time physically surviving, but if you can add a child and boost the pay to $2.60, you have a chance. This might be a more serious effect than you realize.

I’m also sure it would not surprise you to learn that most advocates for the poor would not consider the restrictiveness of your program to be a strength. A neighborhood full of people making $3 per hour is not a happy place for anyone to be, even if a few of the single mothers are doing a bit better.

But here’s a nice feature of your program. A large fraction of minimum wage workers are hired by individuals to do things like nanny work, lawn mowing, etc.

Okay, so if two single mothers stay home all day (each with her own child), then neither has any money. But if they swap children, and each one pays the other one dollar an hour to care for her child, then each mother gets to collect an extra $1.60 in government subsidy. Now if you do that twenty four hours a day, you might have enough to live on.

Now don’t go calling this a “loophole” and putting in some fancy rule to prevent it. This is my favorite part of your proposal so far. :)

But I’m now wondering if a teenager could hire her own mother using allowance money… Certainly there would be no problem with an adult hiring his sister (or girlfriend, or neighbor) as a live-in housekeeper and collecting the subsidy, right?

M

November 11, 2006 at 1:46 am

Frank,
How would you respond to the research the research by Krueger and Card? Krueger has served Chief Economist for the Labor Department and he concluded that minimum wage hikes don’t actually increase unemployment.

M, I’m not economist, but isn’t the claim not that they cause unemployment (in absolute terms) but underemployment? i.e. the shift is often to part time jobs so you end up with the poor getting poorer because they don’t get the time/benefits that the old jobs offered. That’s what I always heard.

I only causes unemployment in the sense that individual businesses are apt to hire fewer full time positions.

Regarding economists, I think one can feel that raising the minimum wage is still ethically just and probably is judged in connection to a set of desired progressive policies.

I should add though that I think many businesses won’t fire people because of minimum wage raising. I doubt McDonald’s would or Walmart would, for example. What I think it will do in practice is drive up the use of illegal aliens.

Clark:
“I should add though that I think many businesses wonâ€™t fire people because of minimum wage raising. I doubt McDonaldâ€™s would or Walmart would, for example.”
–

What all businesses eventually do is raise prices in response to wage price fixing, and inflation always disproportionately affects the poor the most: Goodbye, Dollar Menu!
And who do the progressive folk think they are helping, again?

Big companies can usually absorb a few costs temporarily while they wait for the new inflationary pressures to equalize some, but the smaller family-run businesses, the “mom-and-pops” are usually the first to let their help go when wage price-fixing hits.
Advantage: big business… um, who do the progressive folk think they are helping again?

ed johnson

November 11, 2006 at 3:22 am

Frank,

I think your comment in #110 is kind of misleading…the statement Jeremy linked to was indeed signed by some prominent labor economists. Larry Katz, Rebecca Blank, Ronald Ehrenberg….it’s pretty hard to argue that these people aren’t labor economists, even if you’d like to excommunicate them over their support of the minimum wage. And although you are right that the nobel winners are not exactly “labor economists,” it is not as if Robert Solow, for example, knows nothing about labor economics. Several of these people are a lot smarter than you or me, and non-economist readers might want to know that there is some disagreement over this issue within the profession.

Of course, that doesn’t mean they’re right, and I happen to mostly agree with you that they are off on this. In particular, I never understood why Card and Krueger and their followers were so eager to take a single, fairly weak observation, and construct it into a whole policy movement. It also seems noteworthy that Card and Krueger didn’t seem to sign the letter.

Also, I think it’s possible to make way too much over the fact that the minimum wage is “poorly targeted.” If you’re target is people working for lousy wages, then it’s probably pretty well targeted.

ed johnson

November 11, 2006 at 3:43 am

Regarding the Card and Krueger research, that found that employment at a sample of fast-food chain restaurants in New Jersey did not fall (compared to Pennsyvania) when the minimum wage was raised.

This paper generated a lot of controversy within economics. I think it’s fair to say that most labor economists ranged from skeptical to outraged, although there were many exceptions.

Some critics of the paper contended that the data was bad, and/or that various mistakes were made in collecting and analyzing it, and that accounting for these problems weakens or even reverses the findings. I haven’t looked into this issue myself. I’m skeptical of some of the “debunkers,” because I sense some of them are ideologically driven to criticize the paper at all costs. But they might be right. (Have you looked into this, Frank?)

For me the C&K result seems weak simply because of its limited scope. Say their data was good, and what they reported was true, that employment didn’t fall at some major fast food chain restaurants. But that doesn’t mean that it didn’t fall at some little taco stand, or in some other sector of the economy. That seems more likely to me than their problematic story about monopsony.

And there are lots of other studies that do find negative effects of minimum wage laws. Still, I think it’s fair to say that most economists believe that the employment effects of the minimum wage (at current levels) are pretty small.

Matt Evans

November 11, 2006 at 4:00 am

Jeremy,

Thanks for responding to my question. The problem with your answer is that you still prefer that someone be unemployed than that they receive $4 an hour. If an artist can only make $2 an hour on his own, why would you prohibit him from accepting an art job at $3 an hour? If its true, as you say, that artists need to stare at blank canvases for long periods of time, then we would expect mediocre artists to have a poor dollar-per-hour rate. I’ll move away from art to avoid fighting with the hypothetical (the principles are the same but you and Ardis got hung up on the hypothetical. My point was just to show that for someone who only makes $2, $3 would be better).

Anyway, imagine a woman Loretta earning minimum wage as a gas station clerk. Despite repeated warnings, Loretta has come to work nearly an hour late several times, and her boss has decided she’s not worth the hassle. Proponents of minimum wage would rather the boss discipline Loretta by firing her than discipline her by reducing her wage to $4.15 until she’s proven her punctuality. If the boss were to lower Loretta’s pay, she could, of course, quit the job, which would put her in the same position as his firing her. Opponents of minimum wage like myself think it would be better if _Loretta_ had the choice of choosing whether to accept the $1 demotion or to lose her job altogether. Proponents of minimum wage argue that if Loretta is too much hassle and isn’t worth $5.15, her employer should dump her on the street. She has to be worth $5.15 or $0.00. What I don’t understand is why you, or anyone else who’s intelligent and beneficent, would rather Loretta be punished with a $5.15 pay decrease than a $1 decrease.

Matt Evans

November 11, 2006 at 4:14 am

Jeremy,

Thanks for responding to my question. I’ll switch hypotheticals because you and Ardis wanted to fight with my artist hypothetical, and my purpose was only to highlight a person who only made $2 on their own, and who would therefore have reason to prefer a below-minimum wage job at $3 an hour. So I’ll raise the same problem another way.

Consider Loretta, who earns $5.15, the minimum wage, as a gas station clerk. Despite repeated warnings, Loretta has come to work nearly an hour late several times recently, and her boss has decided she’s not worth the hassle. Proponents of minimum wage would prefer her boss fire Loretta, and reduce her income to zero, rather than reduce her wage to $4.15 until she proves her punctuality. Opponents of minimum wage would prefer _Loretta_ had the choice of choosing whether to accept the reduced pay, but still earn $650 that month, or quit the job, and reduce her income to zero, as minimum wage proponents want. What I don’t understand is why you would rather Loretta suffer a $5.15 than a $1 cut in pay.

Matt Evans

November 11, 2006 at 4:41 am

Ed,

Looking at the graph comparing the restaurant employment, it looked as though San Francisco’s increase was predictable — restaurant employment rose substantially in the first part of most years, and in early 2000 and 2001 rose considerably more than in Alameda even though neither of them was meddling in wages at the time. Note too that San Fransisco’s historical changes are much more dramatic than those in Alameda. The difference between San Fransisco and Alameda that the authors claim is due to the minimum wage in San Francisco doesn’t appear to have been caused by a change in San Fransisco at all: the upswing is comparable to the seasonal change in the previous years. The difference between the cities is due to something that constrained Alameda’s restaurant employement from experiencing its normal seasonal rise. It looks to me like the researchers picked a whole bushel of cherries.

Matt Evans: Contrary to charges that have been made by people opposing minimum wage (or Frank’s variation, or any other plan that guards against virtual slavery), nobody expects an employer to pay an employee “for nothing.” If Loretta isn’t able or willing to do the work she was hired to do — which, at a minimum, involves her showing up for work — then why would you expect anybody to defend her right to continued employment at any wage?

But your example is way too prone to abuse, against Loretta and everybody else. Is Loretta working only half days, and does her reduction in pay last for only that single day? If not, then her loss is out of proportion to her “crime” and continues to mount with every hour the reduction is in force. When Loretta “proves” herself and goes back to full wage, and then is 10 minutes late one day because she was unavoidably stuck behind a freeway accident, is the penalty again enforced? for how long? If her coworker has never missed a minute of work untiil she, too, is stuck behind that same freeway accident, is the penalty imposed on her, too? If Loretta spills some cheze while she is making nachos for a customer, is her pay similarly reduced all out of proportion to the loss she caused? Where does it end?

Dock Loretta for the hours she isn’t working. Fire her altogether if she “isn’t worth the hassle.” Otherwise, if she’s worth keeping at all, she’s worth paying a wage that society (a broader society than her self-interested boss) deems is a protection against exploitation. The boss is protected by having the power to choose how many and which employees he hires in the first place, by setting the terms of the employment (beyond those details society claims a right to regulate — wage minimums, sexual harassment, safety conditions), and by having the power to let employees go when they don’t work out.

Adam Greenwood

November 11, 2006 at 7:07 am

“I would disagree – You only produce and transport less if you have insufficient capital to meet these expenses. Your profit is in the margin of cookies, so to you it really doesnâ€™t matter if your cookies are $1 or $1.20 if you can sell the same amount, except to the extent that it impacts the ROI for any capital investiture.”

Marginal costs, Manny. Learn to love ’em.

Adam Greenwood

November 11, 2006 at 7:14 am

And marginal return, and diminishing marginal utility, and so on.

Adam Greenwood

November 11, 2006 at 7:23 am

Re #92:

This is emotional hysteria. In your mind, since we need to be honest in our dealings with each other (e.g., the marketer of medicines needs to market worthwhile that are not toxic), wage controls and controls on hiring and firing must not have led to economic decline, despite all evidence to the contrary?

Let me put a simple point to you: Frank and I are not against helping the poor. We are against the minimum wage, which we think probably hurts the poor. If you had digested that fact emotionally, you wouldn’t be taking the tone that you do.

Frank McIntyre

November 11, 2006 at 9:43 am

sr,

I am less concerned with satisfying “advocates for the poor” then with identifying who we want to help and helping them in a useful way. Besides, this program targets the people that other poverty programs target, so it is no worse than those. Whether or not it has fertility effects large enough to be problematic is a fascinating question and one I’d love to see better research on. Of course, this brings up the question that you do seem a little opportunistic, sr. You’re very quick to assume large elasticities or no elasticities depending on which one lets you disagree with me :).

ed,

That’s right– I never looked at the list but as we both could have guessed and as you point out there are several prominent labor economists– just not among the Nobels whose names I’d actually looked at. As for Solow, have you heard the story about how he got kicked out of a trial he was consulting on because he had not prepared for it in the least? Solow did some great work on growth and he and Arrow are both incredibly smart guys, but I simply don’t think they actually know enough about the data to make their endorsement impressive.

It is interesting, though, that Card and Krueger aren’t on the list. Especially Krueger.

Jeremy,

I think the above comments pretty much hit the weakness of the CK research and the San Fransisco version too. Only under fairly extreme assumptions do these studies recover the unemployment effects of a minimum wage hike. Since those assumptions are pretty strong, it is hard to say how much of the result is driven by their assumptions as opposed to their data. That said, I think most people agree that unemployment effects for past wage increases have not been huge, but those are not the only problem with the minimum wage.

Matt Evans

November 11, 2006 at 11:43 am

“Fire her altogether if she ‘isnâ€™t worth the hassle.’ Otherwise, if sheâ€™s worth keeping at all, sheâ€™s worth paying a wage that society (a broader society than her self-interested boss) deems is a protection against exploitation.”

Ardis,

Of course it’s not true that “if she’s worth keeping, she’s worth paying” the minimum wage. It’s the equivalent of saying that if a painting (or anything else) is worth having, it’s worth paying $X for. There are many things no one wants unless they’re priced below $X.

What I don’t understand is why you think you’re protecting Loretta from exploitation by letting her receive zero income but not let her receive $4 income. Imagine that Darren works the shift before Loretta and he’s the one who has to stick around until Loretta shows up, and the one complaining to the manager about it. The result is that Loretta’s boss is now telling her that if she’s late one more time this month, she’s done. Because Loretta knows there’s no way she can be on time to work everyday (unreliable transportation, emotional problems, whatever), and that she’s been fired from every previous job for the same reason, she asks if she could offer $40 of her weekly salary ($1 an hour) to pay Darren to willingly accomodate her unpredictable arrival. Why shouldn’t _Loretta_ be the one who decides if she’d rather have an income of $4.15 than an income of $0.00? Prohibiting Loretta, or any other low wage worker, from negotiating for a more permissive punctuality policy, or any other compromise they may need from an employer, only hurts low wage workers.

Madera Verde

November 11, 2006 at 12:33 pm

I worked as a day laborer for part of a summer. Some of the guys I worked with had moved recently from Santa Fe, NM. They had been working minimum wage jobs there. They were making $10/hr in santa fe as dishwashers. They agreed that you couldn’t live in Santa Fe with that income so they had moved. The actaul minimum wage in another town was more valuable (probably because of housing costs) Just as a side note, the legal minimum wage in santa fe is $8.50/hr. I draw 2 conclusions from this.
First: the market actually does lift wages without goverment intervention.
Second: Sante Fe is inhospitable to the poor despite programs meant to help them. Good intentions apparently aren’t enough. (Assuming Santa Feans have good intentions. I’m certain many of them would be glad that these particular co-workers had left their high class city)

Adam: â€œEmotional hysteriaâ€?? If you mean â€œwoman,â€? say so; if you donâ€™t, then avoid words you donâ€™t understand. The examples I gave were real, not hysterical. The social/political contract Americans have with one another is that as a group we will provide safeguards so that each individual doesnâ€™t have to fight all the battles alone (that â€œdomestic tranquilityâ€? and â€œcommon defenseâ€? thing you might remember from 8th grade civics). We ensure that drugs are reasonably safe and effective before they go on the market (and recall them if weâ€™re later shown to be mistaken) so that individuals donâ€™t have to trust the claims of marketers when individuals are not reasonably equipped to make informed judgments. Ditto for the design of your highway, and the auditing of the tax money used to build that highway, and whatever other examples I used. You may disapprove of parts of that contract (as you apparently do for wage floors), but youâ€™re overruled by the collective will and wisdom.

Matt Evans: See above. Why stop Lorettaâ€™s negotiations with a reduction in pay? Why not have her offer sex to her boss and his friends in order to keep her job? Why not have her enter a contract of perpetual personal servitude in order not to have to worry about ever losing a job again? Wouldnâ€™t she be better off, according to your philosophy, with those arrangements than in being fired? I could go on addressing Lorettaâ€™s hypothetical situation, and you could go on adding hypothetical details, but thatâ€™s pointless â€“ itâ€™s why I usually deal in history, not fiction, where people can simply imagine their way out of difficulties regardless of reality.

Frank, I promise that this is my last participation in this thread. Rusty, Adam, Matt, if you ever need my professional services, donâ€™t bother asking. I know how each of you treats your employees, and Iâ€™m not interested. Unlike Loretta, I can pick and choose.

Howâ€™s that for emotional hysteria?

Frank McIntyre

November 11, 2006 at 2:25 pm

“Howâ€™s that for emotional hysteria?”

It qualifies :)

Herodotus

November 11, 2006 at 2:56 pm

As an random observer I was somewhat surprised by the choice of words (“emotional hysteria.”) I don’t know if it was meant to evoke “female hysteria” or not, but the term is one of the most controvertial (and inflammatory) in the history of medicine.

“Emotional hysteria” is a redundant phrase. I’m unwilling to stigmatize every use of the perfectly good word, hysteria, as being either suspiciously motivated or hopelessly unaware. That said, I haven’t seen anything in the preceding posts that qualifies under any definition of “hysterical”, which implies lack of control, fear, and panic. Just because someone doesn’t agree with you doesn’t necessarily mean they are irrational.

Matt Evans

November 11, 2006 at 4:38 pm

Ardis,

I have no idea why you think my belief that there’s no reason to prohibit only the lowest-paid members of society from negotiating with their employer for desired concessions, like benefits, or a more permissive attendance policy, makes me a lousy employer.

It also seems unusual to believe that the hundreds of Mormon families who will pay 16-year-olds less than minimum wage for babysitting this weekend can be compared to pimps or sex traffickers. From my observation, most people, including 16-year-olds, their parents, and those that hire them, intuitively understand that not every job is worth minimum wage, and smartly evade the minimum wage law when possible because everyone is better off without it.

“It also seems unusual to believe that the hundreds of Mormon families who will pay 16-year-olds less than minimum wage for babysitting this weekend can be compared to pimps or sex traffickers.”

Question to Matt, and other Utah residents: just what do you pay your babysitters, and what do you expect in return? Somewhere up higher on this thread Clark made the point that Utah, and particularly Utah County, throws off one’s estimates of the worth of a particularly activity, because there are about a million or two drug-free, basically responsible, mostly impoverished kids aged 14-24 living there just desperate for a job. This came home to us in Arkansas, when we asked a 15-year-old girl, from a family which had recently moved there from Utah, to babysit for us. Afterwards, for a little less than 3 hours work, I paid her twenty dollars. She was astonished. What did you usually get paid, I asked? About two dollars an hour, was her answer. My turn to be astonished.

clair

November 11, 2006 at 6:28 pm

There are two underlying assumptions in the minimum wage that ought to be justified, but never are. First, if the Federal government wants people to get more money, why doesn’t it pay for the wage increment, rather than charging 100% of it to the employer? Second, why should the minimum wage not vary geographically with living costs?

The answers to these seem obvious to the cynical economist in me. The costs are put on the employer because there are fewer employers than voters and the voters want someone else to pay for this social service. The wage is uniform because labor and business interests in high-cost states want to eliminate the competitive advantage of employment and production in low-cost states. This second statement is testable. Check out the relative living costs in states whose legislators support a higher minimum wage. The minimum wage is largely price fixing imposed on lower-cost states by higher-cost states.

Thomas Grier

November 11, 2006 at 6:37 pm

This is very interesting to me. I canâ€™t believe how many comments and examples their have given and yet every other comment begins another formula.

1. A hundred Comments have been written to explain if worker A gets paid more that means business owner B makes less.

The only reason ever economically to raise the minimum wage is due to inflationâ€¦..period. Now there are nobel peace prize winning economists who think inflation raising is a sham. Two such winners Friedman and Phelps pointed out in the late 1960s that it was nonsensical to think that permanent increases in jobs could be achieved by continuing to push the inflation rate higher. Once full employment was reached, the only effect of additional policy stimulus would be to push up inflation. Thus, Phelps and Friedman argued that in the long run there was no inflation/unemployment tradeoff at all .This implies that monetary policy, in the long run, has no effect on the unemployment rate, just on inflation (in the jargon, money is â€œneutralâ€?)

So take money out of the equation.
The other reason is the hypothetical gap created in Americaâ€™s universities of the rich and poor gap. The premise is that wage leveling is equality and the ultimate justice.

The problem is that idea can only be sold to upper class whitey and the poor poor inner city. I was raised by a single mom who at one point the only thing that separated us from the street was an actually closet of a friend that we lived in. Through hard work and diligence we were able to crawl out of the â€œgutterâ€?, where were still able to experience joy and make it â€œworking girl styleâ€?. Now my mother did not attack the imagined illegitimate standards of society that placed her in her situation. The argument is how you view the world in which you live. I do agree with Ardis on one factâ€¦.that someone would be able to do a better job that didnâ€™t have his professional degreeâ€¦because all it gave him was a head full of rocks.

Pick your ideology and your ism.

Either you want a society in which we all make relativity the same amount of money where we can all go out and catch butterflies together. The cost being efficiency and innovation.

or

The system fixed on the principle of â€œlife, liberty, and the pursuit of propertyâ€?. The accumulation of things through democratic means. The cost being greedy capitalists exploiting the working class. My question who usually catches these people? Itâ€™s not Scooby dooâ€™s mystery team itâ€™s usually business itself.

Look out your window! I live in the poorest neighborhood while I go to school. The jobless still have a TV and order pizza every night. They look like they got it pretty sweet to me. Well fortunately Katrina revealed something about the U.S. I will let you figure that out.

A Wage Increase also carries huge social overtones. I believe itâ€™s destructive to society because no matter how high it goes it will never be enough.

When Jesus said, â€œthere will always be poor among youâ€? he was stating a necessary economic fact.

“Well fortunately Katrina revealed something about the U.S. I will let you figure that out.”

That middle and upper-class whites and their political representatives in both major parties on all levels have, when we come right down to the bottom line, put remarkably little money or effort or even serious thought into creating effecient and locally responsive social safety nets that will help out the poor, unprepared, and unlucky in times of disaster, especially when such people are black? Yep, Katrina definitely revealed that.

Mark IV

November 11, 2006 at 8:48 pm

Russell:

The citizens of the U.S. spend about $13,300.00 per annum on means tested assistance for every man, woman, and child below the federal poverty line. In what sense, then, is this statement accurate?

…put remarkably little money … [to] help out the poor, unprepared, and unlucky…

13.3K per person is a lot of money to me. Maybe we are just in different economic brackets.

Of the approximately 1,300 citizens who died in New Orleans as a result of Katrina, about 50% were white, even though the city pre-Katrina was about 70% black. Since the casualties of Katrina were disproportionately white, in what sense is this statement true?

…put remarkably little money or effort or even serious thought into creating effecient and locally responsive social safety nets that will help out the poor, unprepared, and unlucky in times of disaster, especially when such people are black? Yep, Katrina definitely revealed that.

I agree with you when you observe that we put little effort or serious thought into the problem of helping the poor.

Matt Evans

November 11, 2006 at 9:09 pm

Russell, when we moved to Utah and asked about the prevailing babysitting wage, everyone we asked said “$1 per kid per hour.” (All of them had at least three kids.) So we pay $5 an hour, have pizza delivered, and have the kids bathed and already in their pajamas. We don’t have any trouble finding YW willing to babysit for us. Our experience with babysitters in Utah has been better than on the East coast. My theory is that the youth in our new neighborhood come from larger families and are more comfortable around, and more knowledgeable about, young kids.

“So we pay $5 an hour, have pizza delivered, and have the kids bathed and already in their pajamas. We donâ€™t have any trouble finding YW willing to babysit for us.”

We’ve never had pizza delivered, that I can recall, but we do usually have a dinner available for the sitter and the kids if we’re going to be gone during the dinner hour. As for the other stuff, I’m afraid we’ve usually expected the sitter to bathe the kids, get them ready for bed, and put them to sleep. Oh, and straighten up the house afterward. Is that not typical in Utah? Your comments suggest it isn’t.

“Our experience with babysitters in Utah has been better than on the East coast. My theory is that the youth in our new neighborhood come from larger families and are more comfortable around, and more knowledgeable about, young kids.”

On this, we agree. We’ve yet to establish a permanent relationship with a babysitter who isn’t from an LDS family. Very, very teenagers these days have experience dealing with multiple children, especially multiple children under 10 years old.

Matt Evans

November 12, 2006 at 12:34 am

Russell, I don’t know if our standard is normal or not. We do it mostly so my wife can enjoy herself knowing everything will be fine when we get home. If she left them to fix dinner or bathe the kids she’d worry that we’d get home with lots of work still to do. One of our recent babysitters did load the dishwasher, which we hadn’t asked for, and which we thought was cool.

jeff

November 12, 2006 at 8:22 am

Get rid of the min wage completely, it doesn\’t do it\’s job. I would prefer a minimum ratio wage law. Any publicly owned company should simply be required to have no more than a 20:1 divide between the highest compensation package and the lowest. Sounds fair right? The companies total labor costs can stay the same and it levels the playing field in recruiting. The sad part is how increadibly radical this idea is. Even at a 100:1 ratio it\’s radical. The average CEO pay for 2005 was $13,510,000. That means that even if the ratio was 100:1, the cheapest worker would still be making six figures at $135,100.

Privately owned & operated is another story. That\’s were the â€œAmerican Dreamâ€? is and we should encourage small business owners/entrepreneurs as much as possible by keeping government far far away.

Matt Evans

November 12, 2006 at 10:04 am

“Any publicly owned company should simply be required to have no more than a 20:1 divide between the highest compensation package and the lowest.”

Well at least we could expect one benefit from this disastrous idea: the current Hollywood actors would all retire.

“The average CEO pay for 2005 was $13,510,000. That means that even if the ratio was 100:1, the cheapest worker would still be making six figures at $135,100.”

Jeff, I don’t want to be too hard on you since this may be your first comment (ribbing rights at T&S are earned!), but I plead with you, for the sake of humanity, to stop learning economics from Russell. (Who by diligent work earns his ribbing!) : )

Scott Butler

November 20, 2006 at 3:40 am

Frank,
I am curious if there has been any research on how min wage affects fraud and efficiency problems in businesses that tend to use min wage labor.

Considering the specific problem of theft and fraud in the restaurant industry, my common sense \”gut\” reaction is that there would, for a certain time, be less motivation for workers to steal. I would think though that access to unbiased data would be impossible to get. No \”big business\” would be at all disposed to give information that would reflect positively on a minimum wage increase. However, on the other side of it, its still the basement level of income, and if someone has tens of thousands of dollars of debt, a buck fifty raise isnt going to do much to change that motivation.

Sorry to troll this subject up again, since its been inactive for a week. More just saying hi than anything else =D

Scott

Frank McIntyre

November 20, 2006 at 3:47 pm

Hey Scott– good to see you are still alive!

The typical story for employee theft is that one can reduce it by raising the penalty for being fired– and a minimum wage that creates unemployment would certainly do that. This is one of the stories people give for how a minimum wage can be efficiency enhancing. Whether it outweighs the losses from having unemployment is an open question.

Adam Greenwood

November 21, 2006 at 12:05 am

“Adam: â€œEmotional hysteriaâ€¿? If you mean â€œwoman,â€¿ say so”

I call spades spades. The fault is not in the stars, or in your sex, but you.

Herodotus

November 21, 2006 at 2:31 am

Um, as a random member of your readership if I were to “call spades spades” based on this thread I would have some unpleasant things to say about Adam.

May I ask if this represents a shift in the comments policy with personal attacks now trumping discussion? Or is such behavior reserved for absentee moderators?

I know nothing about economics, first of all. So I imagine there are a million objections to what I am about to say. So let me first say that if any of you who understand things better than I do can come up with a solution to the situations I will propose, I would love to hear them.
My job is to help people with disabilities find employment. Now, sometimes a person just needs a better wheelchair, some therapy, etc, and they are great. Able to go out in the market and find competative employment. However, most of the time the scenarios are much more like this: (These are hypothetical, not based on real people, but are similar to actual cases)
Person A is a 27 year old male with Down’s Syndrome. His parents are old and pretty ill, and there is no one else in his family to take care of him. He comes to see me, and we find him a job stocking shelves at a store for maybe just over the $5.15 mark. He works very hard to learn the bus route to work, and to learn the details of the job. Perhaps, because of his limitations, he works harder than we all realize. He may be “unskilled”, but he works so hard. He does not spend any lazy hours at work. He does not waste time on the computer, or gossiping with co-workers, etc. He works. 100% productivity. Much more than most of us can say. But his work is not worth more than say 5.50 because he is “unskilled”. His parents want him to be more independent, so that they can know he is taken care of if something happens to him. He tries to find an apartment. It needs to be in a somewhat safe neighborhood. He cannot afford a safe neighborhood. What about a group home, most people say? Great, except the waiting list is about 10 years. What happens in most of these cases? Lucky people get into group homes or other arrangements. Others get sent to nursing homes after mom and dad die, and no one at the nursing home is prepared to support person A in his job, so he no longer works. Becomes a person living completely off the government, and in an environment not meant for a healthy 27 year old capable of a productive life. Why is his hard work only worth 5.50? Just because he is unskilled? Who decides unskilled anyway? I hear you all saying that 7 dollars an hour would hurt him, because everything else would go up, so you tell me how to help him.
Person B slightly off topic, but also a bother to me. Person B is a 30 year old female with Muscular Dystrophy who has a Masters Degree. Highly skilled. Could have a job and has been offered many jobs. However, all insurance companies she has talked to say they cannot cover her because of her pre-exsisting medical conditions. We have, luckily, just found a way around this. But a big problem with people not working is because of the fear of losing medicaid. The government SSI checks are not enough to live on. Many people with disabilities stay on government assistance because of the fear of losing health care. Once you make a certain amount, you no longer qualify for medicaid. It is not a lot of money. Certainly not a living wage. And most jobs offered to the people I work with do not have insurance. And this is a bigger problem then you think. I have over 150 clients. There are 20 people in my office who each have about the same number. There are over 50 offices in the state of Utah. Please, tell me, if there is no wage hike, what I can do to help these people live. We do provide skills training for those who would benefit, but realisticly that is not everyone. What should they do?

I didn’t understand your response to Scott, and I’m guessing it’s because you were being sarcastic in parts and I can’t tell which. (Unless there really are people who think minimum wage is efficient because it causes unemployment. Ah ha, they say, but by ensuring 10% of people are out of work the 90% will work so much harder to keep their job!)

Maren,

Thank you for your comment. There are many people who are unable to “earn their keep” — they can’t make enough money for a company to justify a wage. Some people with severe disabilities are among them, as are almost all children. People who can’t make it on their own must rely on the generosity of others. Laws can’t change that.

The problem is, some people do not receive the generosity of others. And some people with severe disabilities can and do work, as I pointed out. It may not be as skilled as you and I, but it is work, and they should be paid accordingly. My question is how they can live on what they earn? Or are you saying it is better for them not to work and live on the “generosity” (ie taxes) of others. I personally think it is better for everyone to work, no matter if their job is meager. But because they have meager jobs with meager pay, it becomes easier for them to live off the system, so most loose the motivation to work. Is that what we want? To waste productive members of society just because they cannot gain the skills we can gain? If they could get a living wage, they would not have to waite for the generosity of others, and would be putting money back into the economy, rather than taking the tax payers money. Again, I am not an economist, so if someone has a better solution I would love to hear it.

bbell

November 22, 2006 at 12:41 pm

Maren,

I also would like a better solution as well. Severely disabled people are difficult cases. Best case for them are willing and capable family members. Tragedies occur as parents age and pass on.

“But a big problem with people not working is because of the fear of losing medicaid. The government SSI checks are not enough to live on. Many people with disabilities stay on government assistance because of the fear of losing health care. Once you make a certain amount, you no longer qualify for medicaid.”

This is true to my Exp working in Church welfare. I have seen disabled people who have worked their whole lives and are willing to work be seemingly forced to work part time or not at all out of fear of losing Medicaid as their conditions worsen over time and serious medical care is required more and more. Its one of the weak links in our system of welfare.

DMP

November 22, 2006 at 1:41 pm

The black (“African-American”) economist and syndicated columnist, Thomas Sowell, years ago showed how minimum wage laws contributed greatly to the demise of blacks in the U.S. economically and culturally. In fact, he argued that minimum wage laws were a major contributor to black youth unemployment (which since the 1950’s, when minimum wage laws were introduced), which contributed greatly to both black male youth incarceration, and black female youth pregnancy ratesâ€”both of which have done much to contribute to single female led black families.

I have read many of the above scenarios for how minimum wage can affect small businesses.

My own ‘small business’ story (true, not just hypothetical) is this. In 1986, while I still operated my business out of my home (did that for six years), I paid a man who at that time has retired from working for a Fortune 500 company in San Diego, California, had sold his home, and paid for one entirely in Roy, Utah. He worked for me in a clerical positon for 6 months. During that time, I paid him the minimum wage at that time ($3.60 or so, if I remember correctly). During that same six-month period, he made more money from the minimum wage I paid him (and not counting any other income he had), than I made then (I was supporting a wife, and 3 children at that time). Who will guarantee my minimum wage?

Another aspect to remember is this. We live very much in a global economy. What a person is paid here even for “minimum wage” per hour is as much OR MORE than many make in place like China, India and elsewhere IN A DAY!

As we try to remain competitive in the world market, raising “minimum wages” here makes us far less competitive in the worldwide economy.

To underline this, let me give an example.

One product which we sold to an institutional client a few months ago (and which we sold them also two years ago) cost us less (not including shipping costs) for all components and assembly than for just a couple of componets purchased by themselves in the U.S. They use the EXACT SAME COMPONENTS, but buy them in the orient for far less than they are sold (or can be made, I suppose) in the U.S. My client wanted less than 2500 of these, but my supplier’s minimum to me was 5000. However, with shipping costs more than half the item costs, I can buy them from China, pay shipping and import duties, sell them here, and make MUCH more, than if I bought only 2500 qty of them in the U.S.

We need not consider only grinding the face of our fellow Americans, but we must consider what we do to our brothers and sisters worldwide.

Jesus gave a parable of workers not starting to work in a vineyard until the 11th hour, and paying them the same total amount of money he paid those who “bore the heat of the day” (i.e., worked a full 12 hour shift). He said, in essence, “Can’t I do with my (money) what I will?”

Government should not dictate what I contract with my employees to do. And, as pointed out above, sometimes, whether paying employees minimum wage or not, employers often enough make less, sometimes far less, than even one of their employees may make!

I am still in business after 26 years of opening the doors of my business. But government mandating to me what I must pay for one of the components of my business sounds hunky dory to most people. But, it does not mandate how much I can get customers to pay, nor how many customers I can get to buy from me.

As a matter of liberty, I should be able to do with my own (money) as I choose (and can)!

While mandating “minimum wage”, let us incorporate other ‘Satanic’ measures that force people to do what supposedly they should. Wasn’t that his plan? To make people do what they should? What is different about this?

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